taxation

Let’s have a conversation about what our values are and where we want to go. It’s time to recognise, in the words of Howard Zinn, that ‘We can’t be neutral on a moving train’.

Published by Anonymous (not verified) on Mon, 10/02/2020 - 5:10am in

Chalk board with the words "what's next" written on itImage by Gerd Altmann from Pixabay

‘For a decent standard of living, we all need security and stability in our lives – secure housing, a reliable income and support when things get difficult. For too many there is no such security. Millions of people in the UK are struggling to get by, leading insecure and precarious lives. It’s time to take action on poverty and put this right.

Joseph Rowntree Foundation

UK Poverty Report 2019/20

 

Warning…warning…black hole ahead!  No, not of the dense matter variety but one of the financial kind. That is, of course, if we are to believe the doom-mongering headline in the Financial Times this week that ‘Javid is set to miss his surplus target as finances head for £12bn black hole’.  It suggested that if the economy followed the Bank of England’s economic forecast, it would leave the Chancellor with a £12bn deficit by 2022-3 instead of the surplus he is aiming for and he might have to consider tax rises or more austerity to fill this ‘black hole’.

On the one hand, we have some in the government promising to splash some cash on our decaying school, hospital and other public infrastructure, a situation which has arisen as a result of a decade of government deliberately harmful austerity policies. And on the other, a Chancellor promising fiscal prudence having previously, it must be said, declared an end to austerity.  There seems to be some internal conflict on the subject! Oh, to be a fly on the wall in the conversations between No 10 and No 11!

While the planet continues to burn, and our public and social infrastructure further decays, the head bean counters in the Treasury and other public institutions are still tallying the public accounts on their abacuses. One hopes that we are starting to move away from such narratives, but equally one wonders whether the usual economic mantras will again kick back in? The Conservatives have dined out for decades on their reputation of economic competence and fiscal rectitude. They have used it successfully to mount attacks on the previous Labour government with the message that they had to sort out its mess (when the banks were to blame), and to justify dismantling the public and social infrastructure.

It has given them the perfect opportunity to deliver their ideological agenda of reduced state intervention, but at the time pour public funds into private profit. It has sold the public the incorrect narrative that our public services depend on collecting sufficient taxes which, in turn, they say depends on a healthy economy which, in turn, depends on businesses being able to make money with the least regulation possible.

The public has largely gone along with this narrative since understandably it measures the public accounts in the same way as its own.  Of course, private households – that includes you and me – ARE bean counters. We get an income, out of which we must pay our bills and settle any borrowing repayments with anything left over being used for discretionary spending or saving. If there is anything left over, that is.

The same goes for local government, which relies on government funding and local tax collection to fund its services. It also applies to businesses and corporations whose success, or otherwise, depends on their profit and loss sheets.  We are all users of the currency and as such dependent on the whims of government and its ideological agenda. Neither businesses nor local government have currency-issuing powers and nor do individual citizens unless, of course, they are breaking the law!

We have been led to believe that the health of the economy is measured in whether a government can balance its budget or save for a rainy day. We’ve gone down Alice’s rabbit hole and supped the ‘drink me’ potion with dire results. We need to rethink this accounting model which puts financial health above the health of the nation and the economy and does not represent actual monetary realities.

If we haven’t already, we should start by casting an eye over the consequences of the economic orthodoxy which has led to austerity and cuts to public spending.  Only this week the Joseph Rowntree Foundation published its report UK Poverty 2019/20 which provides a stark reminder of the dire effects of both the Conservative ideologically driven policies and its austerity agenda. The CEO of the JRF Claire Ainsley described the new government as having a ‘historic opportunity [..] to loosen the grip of poverty among those most at risk’ although its criticism fails to point the finger directly at government policies which have led to rising poverty and reinforced the gap between the rich and working people. It also fails to acknowledge an understanding of the long-term agenda that austerity has been – a cover for reduced state intervention, less democratic accountability and the promotion of the notion of self-reliance and personal responsibility.

The statistics should shock us:

  • The poverty rate is at 22% with little change in recent years
  • 5m people were destitute at some point during 2017 including more than a third of a million children.
  • Seven per cent of individuals have been in poverty for more than two years
  • Around 14 million people are in poverty in the UK, more than 1 in 5 of the population made up of 8 million working-age adults, 4 million children and 2 million pensioners.
  • In-work poverty has risen from 9.9% in 97/98 to 12.7%.
  • Around 56% of people in poverty are in a working family compared to 39% 20 years ago.
  • Seven in 10 children in poverty are now in a working family
  • In 2017/2018 31% of the 13m people with disabilities in the UK lived in poverty; that is around 4 million people.
  • There are 4.5 million ‘informal’ carers in the UK, of which nearly a quarter were living in poverty. More than half were women and three-quarters of working age.
  • Rates of poverty amongst Bangladeshi or Pakistani households is nearly 50%

This is but a small snapshot of the report which you can read in full hereBeneath these statistics lie the real lives of real people struggling on a daily basis to keep a roof over their heads, bills paid and food on their table whilst at the same time grappling with insecure employment in the low-paid, part-time, gig or zero-hours economy. And these things are no longer the burden of just working-class people, middle-class professionals, from nurses to teachers and academics, are now feeling the pinch as government has, over 10 years, cut its spending and made their jobs increasingly precarious.

Some would have us believe, like the political commentator Iain Dale, that cuts to spending were not responsible for the tragic death of the young French teenager at the Tate Gallery. Incensed, he stormed out of an interview on Good Morning Britain when Grace Blakely suggested that austerity had been at the heart of this terrible event and made the entirely valid point that our most vulnerable children have been failed by a government that is supposed to protect them.

And that is the nub of the question. What is the role of government? To balance its books or serve public purpose? We have been consistently failed by a government that has put bean-counting at the heart of its policies, not because it was essential to deliver a balanced budget, but to deliver its long-held belief in its political agenda, an agenda which has been pursued by successive governments on the right and left. The fact that it is promising to spend now (with caveats) should surely be a signal to ask why if there was no money yesterday there is today and why, when it suits, the government can always find the monetary wherewithal to spend?  The next question we should ask is who will benefit from this increased government spending if it goes ahead?

While the wealthy carry on getting richer and businesses continue to benefit from public money, whether in the NHS (minus its National) or education, social care, local government or other public institutions, the public and social frameworks are decaying by the minute with no apparent let up despite all the wonderful promises.  Time will tell, as will the next Chancellor’s budget in March.

In the meantime, the stories of those affected by government policy continue to cause concern.  This week, ITV published Department of Housing figures which showed that the numbers of people with disabilities and medical conditions waiting for housing had risen by almost 11,000 in two years – a rise of more than 10%.

The National Audit Office, as a result of the concerns about links between welfare reforms and declining mental health, reported on its investigation of how government monitored suicides among benefit claimants, saying it was highly unlikely that the 69 cases investigated by the DWP over a five-year period represented the overall numbers of self-inflicted deaths. It criticised the government for not having any robust record of contact from coroners about such cases.

Furthermore, a report published by the Office for National Statistics earlier this week revealed that people’s life satisfaction fell in July-September 2019 compared to the year before and that anxiety remained high as concerns about the future economic outlook and employment prospects grew. It also revealed that real household spending per person had grown at its slowest rate since the end of 2016.

As northern cities face huge cuts to council funding, adding to the already dire financial situation being faced by councils and the prospect of more cuts or local tax rises, combined with a country facing the prospect of weak growth as a result of government’s 10 years of domestic policies and a global slowdown, the future is not looking bright right at this particular moment. We have been led down a dark alley with a dead-end at least for the majority of citizens.

But it didn’t, indeed doesn’t, have to be like this. With the knowledge to challenge the notion that money is scarce and that there is no alternative to the market-led dogma which has dictated government policies for too long, we could turn things around. We are fighting an ideological battle dressed up in household budget terms and as a result, the future of our public and social infrastructure, not to mention our planet, is at stake.

In the light of the confusion and uncertainty which currently prevails and a divided left wing which is tracking backwards, we need a conversation about where we go from here. What sort of society do we want to live in? A dystopian Mad Max society which favours large corporations over democracy and puts individuals at the top of the pyramid or one which understands that humans flourish best where there is cooperation, compassion and caring?  It’s up to us. As Howard Zinn, the political activist wrote ‘You can’t be neutral on a moving train’.

The Gower Initiative was formed to begin that conversation and challenge the status quo. You can find out more here.

If you would like to be part of that conversation, we have four events coming up in February and March. Join us if you can!  Follow the links for tickets.

London

20th February

https://www.eventbrite.co.uk/e/gower-initiative-for-modern-money-studies-seminar-tickets-88843075029

22nd February

https://www.eventbrite.co.uk/e/mmted-masterclass-tickets-88855464085

Manchester

21st February

https://www.eventbrite.co.uk/e/gower-initiative-for-modern-money-studies-seminar-tickets-88853917459

Northampton

28th March

https://www.eventbrite.co.uk/e/challenging-the-narrative-about-how-governments-pay-for-public-services-tickets-89462136659

 

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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

 

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The post Let’s have a conversation about what our values are and where we want to go. It’s time to recognise, in the words of Howard Zinn, that ‘We can’t be neutral on a moving train’. appeared first on The Gower Initiative for Modern Money Studies.

Getting the narrative right. Careful stewardship of the economy is not about balancing the public accounts; it is about serving the interests of the nation and delivering public purpose.

Published by Anonymous (not verified) on Tue, 21/01/2020 - 7:25am in

Hand holding note with the slogan "let's rethink"Image by Gerd Altmann from Pixabay

A month on already since the general election and as well as the usual post-Christmas/January blues, the nation still finds itself in a state of deep uncertainty about its future. The economic predictions are not confidence-inspiring. The outward signs of a downturn or a recession are building up.  Retail sales fell sharply in December and according to the ONS, it was the fifth month without growth. The Centre for Retail Research also revealed in its report that the high street had suffered its worst year of job losses for 25 years and is expecting that to increase significantly in 2020. It also reported that over 16,000 shops across the country had closed. Brexit uncertainty is blamed for the poor results, but of course, statistics don’t tell the whole story and there is more than meets the eye.

Whilst, of course, change in the way we shop may bear some responsibility, ten years of austerity and cuts to public sector spending, low wages, precarious employment and rising private debt must take a large portion of the blame.  Combine that with a slowing world economy, global political uncertainty and the prospect of trade wars, not to mention real conflict, it is surely enough to make us all hunker down and keep our wallets firmly zipped up. It has even been suggested that our fears about the environmental cost of our buying habits are making us think twice about how we consume.

This week Kristalina Georgieva, the head of the International Monetary Fund, warned that the global economy is at risk as a result of rising inequality and financial sector instability and noted that across the OECD, and in particular the UK, income and wealth inequality have reached, or are near, record highs. She also noted that social unrest is likely to be the corollary of rising wealth inequality and we are certainly seeing evidence of that around the world in Europe, the US, South America and Asia.   As an aside, it is ironic that the IMF in making these warnings seem to have no concept that it has been their own promotion of destructive economic orthodoxy which has led to this place of great uncertainty and rising inequality.

Boris Johnson promised the nation a ‘golden age’ and yet on that basis, the prospect seems elusive or more accurately an illusory pipe dream.  Whilst on the domestic front certainly the current government could do much to soften the effects of a global downturn through increasing public spending, it is still unclear as to whether they will keep their manifesto promises to invest in the NHS, schools and national infrastructure and if they do will it be enough and who will be the real beneficiaries?

Johnson would seem to have already reneged on his promise to find solutions to the social care crisis, saying that whilst the government would be bringing forward a plan this year it could take as long as five years to implement. Social care, which is already on its knees and facing further cuts and increased charges for its provision, as a result of cuts to local government funding, could find itself yet again put back in the slow lane for government action despite endless promises. The impact would be devastating for those who desperately need support now not in five years’ time.  The Stormont finance minister also said this week that the proposed financial package for Northern Ireland would keep it in an ‘austerity trap’ unless it was increased and that it would do nothing to fix the ongoing problems in health and education.

Daily media reports make it clear that austerity hasn’t ended despite the government’s promises. Our health service is in ongoing crisis due to lack of adequate funding, our school infrastructure and education system is in a state of decay and not fit for purpose, the reforms to the welfare system are reducing people to penury, hunger and homelessness while the green economy has shrunk since 2014 as a result of the substantial cuts to government subsidies, according to figures released this week by the ONS.

We were told there was no alternative to austerity and that the government had to fix the country’s finances to avoid bankruptcy and so it is perplexing to discover that the government has suddenly found some money to put right the ‘economic vandalism’ it has imposed as a result of its supposedly necessary policies.   It is equally surprising in the light of this ‘economic vandalism’ that at PMQs this week Boris Johnson defended it as ‘careful stewardship of the economy’.

It is also cause for concern to read this week that the Chancellor has hinted that there could be tax rises in the Spring or Autumn budget and that he was determined to take ‘the hard decisions you need to sometimes, especially at the start of a new government’. In the same interview, he also claimed that once the government had put an agreement in place with Europe that the UK would ‘continue to be one of the most successful economies on Earth’ which given the state of the economy at present would seem to be wishful thinking or delusional.

‘Hard decisions’ could be related to increasing taxes to fund the government’s spending plans (when of course they don’t) but equally, they suggest the same adherence to balanced-budget orthodoxy. Will the government’s attachment to fiscal discipline take precedence? Old habits die hard. Indeed, in a recent FT article, the Chancellor made it clear that money for Further Education colleges was not generally capital spending which would, under his new budgetary rules, give him scope to borrow, but was instead day-to-day spending, and as such there was little possibility of extra money. He also said that before considering increasing taxes he had told his ministers to look at their budgets and carry out an ‘exercise in prioritisation…. to release resources for his priorities’ which he hoped would provide the money to pay for rising costs of an ageing population in the 2020s which could threaten the public finances. He went on to say that low-interest rates were a market signal from investors that the cash was available to do something productive.  It doesn’t sound much like a brave new world in government monetary financing. But we shall see.

The public has been carefully groomed to accept the lie about how the government finances actually work. Careful stewardship of the economy in the case of the Conservatives implies fiscal rectitude and look where we have ended up as a result.  Whilst government continues to fob the public off with the lie that tax is revenue for spending, the wider implications for a slowing economy of increasing tax would be folly indeed. Further reducing the purchasing power of working-class people won’t mitigate the short-term problems of increases in food and fuel prices, nor help them pay down personal debts. Quite simply, he would be tightening the screw on the economy for no other reason than to inflict pain and create division. The Tories are on an ideology-affirming project; the Chancellor is an avid reader of Ayn Rand.

As an aside here on the subject of taxation, increasing it for the very rich who already have more than their fair share of the national resources might, in hands of a government serving the public purpose, be the right action to take.

More than ever, we need to convey the truth about how governments like the UK spend and that when it spends its focus should be not on balancing books but balancing the economy, in other words, matching spending to the productive capacity of the nation and ensuring full employment.

Whilst the role of government in a democracy is increasingly muddied by the involvement of global corporations in policy decisions, it is important not only that the public understands the basic realities about how governments which issue their own currency spend but also and more importantly that spending choices are the result of political decisions, not checking whether there are sufficient pounds in the public purse to pay for it.  Smoke and mirrors disguise in bare accounting terms the way in which money really works.

The reality is that a government with the power of the public purse can chose either to pour public money into private corporations to run public services, give tax breaks to the rich or indeed bail out banks and fund wars or equally choose to fund publicly delivered services, the public and social infrastructure and embrace full employment policies to deliver public purpose aims. When a government does the former there is generally silence on how it will be paid for and yet when left-wing politicians propose the latter, then the question on the lips of right-wing politicians, the media and economic pundits is ‘where will the money come from’? The fact is that such spending is a question of political choice, not whether there is sufficient money in the public purse through collecting tax or being able to borrow. A sovereign currency-issuing government needs to do neither.

We should also understand that the Conservatives, whilst framing their spending in household budget terms, already make those choices about who gets the money and who doesn’t, and we have experienced the dire consequences of those decisions for 10 years. Their spending plans have been skewed towards the interests of their rich friends and big corporations; the people of this country have been the losers.

What is important for the public to ask is who benefits from a government’s public spending programmes and whether it has the resources to deliver them, not how it pays for them.

If the left truly wishes to deliver real change and an inclusive progressive agenda which serves the interests of all working people, if it really is to challenge the status quo, it will need to change its thinking. It will have to change how it views monetary reality if it is to succeed.

Events

We are holding events in London, Manchester and Northampton in the next couple of months. Please see our events page for details.

Join our mailing list

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

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

 

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The post Getting the narrative right. Careful stewardship of the economy is not about balancing the public accounts; it is about serving the interests of the nation and delivering public purpose. appeared first on The Gower Initiative for Modern Money Studies.

Capitalism: A Journal of History and Economics

Published by Anonymous (not verified) on Sat, 04/01/2020 - 1:33am in

As we are living in the present when tragedy and farce mix and make the past look oracular, a new history of Capitalism must be introduced for the sake of the future. The new year brought with it a much-needed … Continue reading →

#RethinkMoney – The Greatest Lie Ever Told (Probably)…#TaxAndSpend

GIMMS is delighted to have permission from blogger Duncan Poundcake to reblog his article which was originally posted here

 

So what have we learned from the General Election of 2019?

Mainly the familiar cry of:

”How will you pay for it?”

”Labour ‘broke the bank”…

”Labour left a note saying  – We have spent all the money”…

Nothing very new in that. We have heard it on a loop for nearly 10 years from many Politicians. Policy Makers, Think Tanks, Economists, The Press and RW influencers, that:

  • For Her Majesty’s Government (HMG) to spend is a very bad thing to do.
  • HMG is at the largesse of the Tax Payer and is unable to spend for public purpose. HMG must either – a: Tax and/or b: Borrow before it spends.

Why?

  • There is an undefined and finite amount of Sterling that can ever be available in the economy.
  • Once this Sterling threshold has been reached, HMG must borrow back this Sterling from the private sector, to fund its spending.

Even Labour, with its £400bn spending bill, tells us; Tax, Borrow and Spend is the order of the day.

Unfortunately, yet again, Labour miss an opportunity and tell us the polar opposite of the reality…

1. The UK has ALWAYS been a Sovereign Fiat Currency Issuer

HMG has ALWAYS been able to create £s at will but there have been numerous times where, by circumstance, or design, it has been limited as to how many Fiat £s it can create.

Since 1971, the UK has been a Sovereign Fiat Currency Issuer, without restriction – In laymans language, HMG:

  • Has the legal monopoly on the creation (Issue) of its OWN currency.
  • Can create (Issue) Sterling at will, from thin air, with zero impedance.
  • Everyone else is a Currency User.

So why does everyone tell you otherwise?

Time to travel in the Monetary TARDIS…

2. A little bit of History repeating – The Gold Standard (Again):

Image by PublicDomainPictures from Pixabay

 

Over much of the 20th Century, the UK, US and other developed nations have been on and off variations of the ‘Gold Standard’.
In stark comparison to the economics of the last 40 years, when the Americans and British created ‘The Gold Exchange Standard in 1944’, their focus was:

  • To avoid trade deals which impoverished lesser trade partners.
  • An attempt to control flows of speculative financial capital.

The latter, in particular, had wrecked the global economy prior to the Great Depression, the outcome of which was seared into their collective memories:

  • A global depression,
  • Mass unemployment.
  • The rise of Fascism in Europe and Communism as a response.
  • Global War.
  • Millions Dead.

Post-War planners aimed to prevent the repetition of previous competitive currency devaluations but engineered not to force debtor nations to reduce their industrial bases to attract financial speculators and keep interest rates high.

British economic sage, John Maynard Keynes…

John Maynard Keynes portrait© National Portrait Gallery, London
Image cropped from John Maynard Keynes, 1st Baron Keynes of Tilton; Lydia Lopokova by Walter Benington, for Elliott & Fry bromide print, 1920s Given by Bassano & Vandyk Studios, 1974 Photographs Collection NPG x90117

again fearful of repeating the mistakes that led to Great Depression and carnage that followed, was the primary mover behind Britain’s proposal that Trade Surplus nations should be forced to use their trade surplus for good, or lose it for good:

  • Either import from debtor nations
  • Build factories in debtor nations
  • Donate to debtor nations.

The U.S. opposed Keynes’ plan and proposed creating the International Monetary Fund (IMF) with enough financial clout to counteract destabilising flows of speculative finance. However, in contrast to the modern IMF, the fund would counteract these speculative flows automatically, no political strings or agendas. An honest broker.

History demonstrates that on almost every point where the USA objected, Keynes was to be proved right.

3. Bretton Woods… 

The U.S. Secretary of the Treasury, Henry Morgenthau, Jr., addresses the delegates to the Bretton Woods Monetary Conference, July 8, 1944The U.S. Secretary of the Treasury, Henry Morgenthau, Jr., addresses the delegates to the Bretton Woods Monetary Conference, July 8, 1944 (Credit: U.S. Office of War Information in the National Archives).

 

In 1944, at Bretton Woods, the Allies met to plan a Post-War world and as a result of the collective conventional wisdom of the time, the Allied nations preferred to do this by regulating a system of fixed exchange rates, indirectly disciplined, by binding the USD to Gold at a fixed price per ounce.
This  system relied on a regulated market economy with:

  • Strict controls on the values of currencies.
  • Flows of speculative international finance would be stopped by channelling them through Central Banks. #Capital Controls
  • The intention being to direct international flows of investment.
  • The focus on using capital to building useful things that created jobs or benefited the public purpose, rather than financial speculation on the markets.

Interestingly, it was US planners who coined the phrase ‘Economic Security’, surmising that a liberal international economic system would enhance post-war peace and keep Communism at bay. This came from a belief, that causes of both World Wars, was ‘Economic Discrimination’ and trade wars. The main culprits being trade and exchange controls of Nazi Germany and the ‘Imperial Preference System’, where members, or former, of the British Empire were given special trade status, resulting in a German, French, and American protectionist policies.

*US Planners were shrewd enough to recognise that to keep Capitalism popular, taxpayers and workers, needed to see a benefit from it and to feel their lives being improved, rather than risk the alternative, Communism. To ensure this, regulated Capitalism was the solution and the irony is, we have the Cold War to thank for this Golden Age.*

In stark contrast to today, Bretton Woods participants agreed that a liberal international economic system ALSO required governmental intervention.

Following the economic turmoil of the 1930s, the management of economies had become the main activity of governments, taking on increasing responsibility for the economic well-being of its citizens. This had proved to be largely successful and popular. Employment, stability, and growth were the order of the day. In turn, the role of government in the national economy would continue. The Welfare State, which grew out of the Great Depression, had created a popular appetite for governmental intervention in the economy, and it was Keynes who made it clear that Government intervention was required to counter market failures.

Enter the era of State Capitalism…

Members of the Gold Standard agreed to closely regulate the production of their currencies to maintain fixed exchange rates, with a bit of wiggle room either side. The express aim being to make international trade easier. This was the foundation of the U.S. vision of a post-war world, Free Trade:

  • Lowering tariffs
  • Maintaining a balance of trade via fixed exchange rates that assists Capitalism.
  • Reduce trade and capital flows.
  • Revive the Gold Standard (Again) using USD as the world’s reserve currency.
  • Prevent Governments messing around with their currency supply, as they had between the wars.
  • Governments would be required to monitor the production of their currency and would refrain from manipulating its price.

4. Tax & Spend & Borrowing…

It is important at this point, to remind ourselves, HMG was still a Fiat Currency issuer but, up until 1971, had voluntarily limited its ability to created its own currency.

So following Bretton Woods, from 1944 until 1971, Gold was ‘Convertible On Demand’ into Sterling. This required HMG to have lots of Gold stashed away at the Bank of England (BoE) just in case anyone wanted to convert their pot of Gold into Sterling. Indeed, once upon a time, you could walk into the Bank of England with Gold and they were obliged to accept it and pay you cash.

Like all liabilities, it was worked out on risk. HMG surmised that only a small percentage of the public would ever demand their gold to be converted into Sterling, at any given time, so it only had to have a limited amount of Gold in reserve, just-in-case. Fractional Gold Reserve Central Banking, if you will.

However, because of the rules of the Gold Standard, HMG Currency Issuing (Spending) would be constrained by the amount of gold in the BoE vault.

The other issue HMG was acutely aware of, was spending Sterling for Public Purpose was in reality, spending the Gold it had in the BoE. The Gold never left the BoE but with a promise of convertibility into £s:

  • Limited how many £s could be spent at any one time
  • How many £s cash could be spent at any one time was…dictated by how much Gold it had in reserve.

So if HMG wanted spend more, it had to:

  • Find more Gold to allow it to create more Fiat £s to
  • Or, recoup Fiat £s from the private sector i.e: TAXPAYERS – BEFORE it could spend more. Welcome to…‘Tax and to Spend’.

Now to protect all that Gold in the BoE from a profligate Government, just creating Fiat £s to spend, they had a few tricks up their sleeve…

How could a Sovereign Currency Issuing Government, such as HMG with a self-imposed brake (The Gold Standard) on how many £s it can create and issue, spend more £s than it was allowed to create?

The Solution?

BORROWING BACK Fiat £s from the taxpayers’ savings – to spend again – rather than creating and issuing additional new Fiat £s, which might exceed the back-up supply of Gold. The plan being:

  • Why not get taxpayers to exchange their £s savings, for Sovereign Gilts, Treasury Bonds OR similar, that pay interest.
  • Taxpayers still get to benefit from the HMGs spending MORE £s each year than it intends to collect back in tax. Thus allowing taxpayers to continue to build their wealth of £s.

ERNIE

*One ingenious demonstration of this, was the infamous ‘ERNIE’, invented by a Bletchley Park codebreaker in 1956 and Premium Bonds, offering taxpayers another way to save outside of banks or building societies. Which of course, was not its main purpose. Premium Bonds were just another way to recoup £ from taxpayers, without actually Taxing. Recycled Money.*

 

And this is exactly how HMG ran Government spending up until the point Richard Nixon suspended US involvement in the Gold Standard in 1971 – due to the spiraling cost of the Vietnam War. US Government spending was outstripping its Gold Supply – and became a Sovereign Fiat Currency Issuer, without restriction.

*As Keynes had predicted in 1944, eventually the USA found itself in the inherent paradox of the Gold Standard:

1. It was required to be the Worlds Reserve Currency and as per the Bretton Woods agreement, keep USD flowing outwards to keep global trade moving.

2. However, this put a restraint on its ability to spend inwards, domestically.

A large percentage of its Gold Reserves had to be set aside to cover outward flows of USDs, restricting  USDs available to be created for domestic Public Purpose – which at the time of Nixon was Johnson’s: ‘The Great Society’ project.

Between 1944 – 1971, the US saw its stash of total world Gold Reserves shrink from 65% to 22%. The market speculated that the US has so many USD out in circulation, it was unable to convert USD to Gold, due to these dwindling Gold Reserves. The dollar depreciated. Inflation went up, employment followed suite and due to the spending spiraling requirements of the Vietnam War, Nixon saw the solution as suspending convertibility to Gold and to go 100% Fiat. No restrictions to USD creation.*   

The Gold Standard was effectively dead. The US now no longer converted USD into Gold and other nations bailed out in 1973. The Gold Standard was officially buried in 1976. The UK followed suit. However, the system for creating and issuing HMG money, DID NOT CHANGE and as I write, in 2019 nearly 50 years later, the Government still operates its finances as if it were on the Gold Standard:

  • So the HMG continues to sell Gilts, Treasury Bonds, Premium Bonds
  • So it can ‘borrow back’ £s from taxpayers
  • To spend MORE than it collected in taxation.

The one upside of this was/is a form of Corporate Welfare exchanging £s for Government IOUs, with the interest received, adding to private savings and wealth.

So we have ended up where the reality of Money Creation since 1971, is that HMG is not revenue constrained when it comes to spending for Public Purpose but continues to use a Monetary system that claims to be still on the Gold Standard.

To reiterate, for clarity, Her Majesty’s Government:

1. Is No Longer on the Gold Standard.

2. Is Not required to convert £s into any commodity to spend.

3. Is Not required to use taxpayers £s to spend.

4. Does not need to borrow or recoup Taxpayers £s savings to spend.

Yet, NO Government since 1971, has changed the from Gold Standard System to reflect the powers of a Fiat Currency Issuer. So HMG continues to tell us that it needs to:

  • Sell Gilts, Treasury Bonds. Premium Bonds, The Lottery etc.
  • Use the proceeds – Taxpayers’ Private Savings & Wealth to allow it to spend more than it collects in Taxes.

Now the rub with this is the interest, or payouts HMG needs to make to holders of these, all of which is added to the National Debt. So to pay for this, the Government needs to issue even MORE Gilts & Treasury Bonds etc. to cover the interest payments. Ad Infinitum…

HOWEVER…

A quick reality check via Quantitative Easing (QE) has shown us, if you are lucky enough to have owned £454bn of Gilts and Corporate Bonds, HMG bought from you, then you have become very rich indeed…unlike HMG which is falling ever deeper into debt.

Which is a complete MYTH and has created 50 years of confusion and a convenient smokescreen for those who see Government as a problem.

Even the BoE concurs: “Read my lips. No new taxes”…Does the Bank of England print money? – YouTube

5. Enter, Stage Right…AUSTERITY:

Now if you believe all this unwittingly, or otherwise, there is a logic in thinking that an ever-increasing National Debt is unsustainable and the ONLY solution is to REDUCE, substantially Government spending and to pay down the debt.

However, knowing that Gold Standard limitations no longer apply, the HMG has created a solution, to a problem that does not exist and ironically, created a further problem to the original one, which never existed in the first place. Think IMF Crisis, 1976.

The National Debt and the convoluted machinations of issuing ‘debt’ and accounting for it, as a brake to stop HMG from issuing more Fiat £s than it could guarantee with Gold, is a relic of history. Some would consider this insistence on clinging onto an economic fossil, to be stupidity, or perhaps a sign of something far more deliberate…

It is of course a legal requirement and not unreasonable, to expect HMG to keep a track of its spending. The much-vaunted DEFICIT:

1. The gap between £s out and £s in.

2. A balance sheet of the Fiat £s HMG has decided to spend into the economy but not redeemed in taxation.

When the HMG spends, this allows taxpayers to keep £s. When the Government reduces spending, this forces taxpayers to use their savings to spend and REDUCES private wealth. The less the Government pays for, the more you have to use your savings and income.

Repeat after me…AUSTERITY REDUCES PRIVATE WEALTH…

Questions to be answered…

1. If HMG fell out of the Gold Standard in 1971…

2. Which resulted in the £ no longer being required to be convertible to Gold…

3. Why do we still account for fiat government spending for public purpose as if we were on the Gold Standard?

4. Is it just welfare for taxpayers to exchange their fiat £s into Government Savings Instruments, that pay interest?

As QE has shown us, HMG Debt Instruments are not distributed equally across all taxpayers but are bought by a wealthy private and corporate elite.

Perhaps the most mind-blowing for taxpayers to get their head around is the ability for HMG to PAY OFF – at ANY TIME – the National Debt by purchasing all Debt Instruments in exchange for Fiat £s. Hello Japan…

So far from being ‘Fiscally Prudent’ by reducing the Deficit and running Government Finances like a household, only spending what is received in Taxation – the real-world outcome is to impoverish taxpayers and their well-being.

6. The solution?

A fundamental shift and an education of all taxpayers and the political establishment, to understand that:

As long as labour and sustainable resources are available, Government Spending is not only a good and positive but absolutely essential for the economy and the democratisation of wealth.

The ONLY limitations HMG has to spending for Public Purpose are:

1. The physical resources available.

2. The labour available.

3. Its own aspirations.

4. The taxpayers’ willingness to learn, deconstruct and the 1% and their cheerleaders across politics, the media and society who have used the confusion around Government Money Creation spending and taxing for the purpose of wealth extraction and power.

History demonstrates that the Tax and Spend myth, has resulted in dire and far-reaching consequences.

Roberts

In 1976, when HMG went to the IMF claiming to have ‘run out of money’ and in return for $2bn, Healey was required to introduce Austerity measures – which were a precursor to the economics of Margaret Thatcher – latterly Neo-Liberalism.

There was an alternative proposed some 3 years before, yet thanks to Wilson, Healy & Callaghan’s refusal to listen to Tony Benn, history unfolded the way it did and Healy capitulated to Hayek and his Neo-Liberals, who have spent the following 42 years capturing the state, media and democracy in the UK – and beyond – for their own benefit.

Oh and by the way, Britain never did go ‘Bust’, no matter what Mr Roberts writes…

 

 

 

 

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The post #RethinkMoney – The Greatest Lie Ever Told (Probably)…#TaxAndSpend appeared first on The Gower Initiative for Modern Money Studies.

The time has come to talk of many things; of taxing and spending and an economic system that needs mending. 

Protest placard with a picture of the Earth in space and the slogan "One World"Photo by Markus Spiske on Unsplash

In the news, the Prime Minister tells millions of  WASPI women affected by the changes to the state pension age that he couldn’t promise to magic up the money for them despite having found lots in the magic money pot for Tory manifesto pledges; the Home Secretary, Priti Patel, whilst visiting a food bank, claims that the Tory government was not to blame for poverty in the UK and, shifting the blame onto local councils, forgets to mention that central government funding has been cut by nearly 50% since 2010/11.

After 9 years of austerity, the consequences couldn’t be starker for our public and local government services, however, it is UK citizens, families and their children who have borne the distressing costs of cuts to social security benefits, both on their health and financial well-being. It cannot be clearer that the steep cuts to tax credits, child and disability benefits, ESA and Incapacity benefit and housing along with the introduction of Universal Credit have been behind the increases in child malnutrition, food bank use, homelessness and suicide.

The IPPR this week published its report ‘Divided and Connected’ which reveals that the UK is more regionally divided than any comparable advanced economy.

In the same week, the Resolution Foundation published its report ‘The Shifting Shape of Social Security’ It notes in its analysis of the manifestos of the main parties that child poverty is set to continue rising under the Conservative Party’s social security plans, whilst Labour’s £9bn of extra spending would mean 550,000 fewer children in poverty, it would not reverse the effects of the £5bn benefits freeze and could still see more children living in poverty in 2023 than do today. It noted that major policy changes have reduced support for working-age households since 2010 resulting in overall spending in 2023-24 being around £34bn a year lower on current plans than if the 2010 benefit system had remained in place, and that the cuts in support had fallen almost entirely on low-to-middle income working age families. It also noted that the Conservatives’ 2019 manifesto makes no changes to existing policy and as a result child poverty risks reaching a 60-year high of 34%.

Although the conservatives are promising more spending on health and education, it seems clear that they intend to carry along the same policy paths they have followed since they came to power in 2010 which have involved cuts to benefits, conditionality, sanctions and welfare to work. Clearly, they have no intention either of reversing the already implemented cuts or reforms which have done so much damage and left a trail of devastation in many people’s lives. Priti Patel’s remark about who is to blame for poverty is indicative of Tory neoliberal credentials of denying governmental responsibility and passing the buck along to others, whether local government who have been firefighting for lack of funds or indeed shifting the blame onto citizens themselves. Her position has not changed much since 2015 when she said, ‘There is no robust evidence that directly links sanctions and food bank use.”

In the light of the very real consequences on people’s lives of government spending decisions and policies, it is all the more depressing to read the two analyses of the party manifestos by the Resolution Foundation and the IFS which instead of looking at the real effects of government spending policies on the lives of real people, examine them in purely financial terms and arbitrary fiscal rules which as we may now be realising bear no relationship with how money really works.

Hunkered down in household budget explanations, the IFS, rather than considering the spending promises of all three parties from the perspective of potential outcomes for the economy and its citizens, examines them in relation to the prospect of raising taxes or borrowing and the likely impact on the deficit and national debt.  As usual, the question, if not asked directly, is how will the parties pay for their spending plans? When, instead, they should be acknowledging that the real question is how will a future government manage existing resources to meet government goals? This will be the real constraint that any future government will face, however progressive that government may be. The resource balancing act will be key to maintaining spending within the productive capacity of the nation to deliver public purpose.

The Resolution Foundation summed it up depressingly in its conclusion in saying that:

‘The priority that both main parties have placed on credible fiscal frameworks in this campaign is laudable. Such rules are hugely important for the government’s overall economic priorities. In setting out new fiscal rules, it is vital that they provide a clear framework for sustainable public finances, constraining the temptation for policy makers to promise unfunded giveaways.’

Such institutions unsurprisingly have focused on the notion that it is the role of government to balance its budget rather than serving citizens and improving their economic and social well-being. It is regrettable that a recent poll has suggested that many people doubt whether such spending plans are affordable and yet given the reality of the consequences of not spending adequately how could we possibly afford not to?

The nation is now paying the price for politicians pedalling the lie of the last forty years that money is scarce, that there is no such thing as public money and that good government is about fiscal discipline. Even if changing that notion in the public consciousness will take time, in the light of the urgency of the challenges to address climate change and social inequality we need an urgent step change in economic thought on a planetary scale since it is our survival on this planet which is at stake.

This is not, however, a time to make compromises with an economic system which has already done such huge damage. The seeds of an alternative model are already being hijacked by companies cynically promoting their green credentials with one aim in mind: to create more growth to keep the profits rolling. Reducing our plastic use and buying electric cars will scarcely make a dent in the scale of the changes we need to implement. We may have a broad vision, but that now needs to be developed into concrete realities. It may be still a work in progress, but it is a vital one we must not ignore.

This is a time to reimagine the world. A fairer and more sustainable approach to replace the one of endless growth which currently defines our capitalist economic system and puts profit before people and the planet.

Progressives on the left are beginning to initiate a much-needed conversation about what we need to do to reverse the decades of social injustice and challenge the idea that we can maintain the engine of growth on a finite planet.

However, and most regrettably, politicians on the left are still trying to have that conversation stuck in old economic paradigms of how money works. When they are asked how they will pay for these vital programmes the response is always one of tax and spend or borrowing to invest. Raising corporation tax, bringing back the magic money tree from the Cayman Islands, taxing the rich until the pips squeak or borrowing on the markets because interest rates are low. Instead of talking about taxing the wealthy to redistribute wealth by removing their colossal purchasing power and ability to influence politicians, they talk about funding our public services with the proceeds.

Again, on the left some politicians are suggesting that the government is akin to a business and that renationalising transport, our utilities, mail and the NHS will allow the government to plough back the profits back into public services. Yes, we need to end the rip-off of privatisation which has not benefited citizens and has allowed public money to flow into private pockets for profit motives, but let’s not buy into the idea that the government resembles a large corporation with a profit and loss sheet. It doesn’t.

The government is the currency issuer and neither needs to tax nor borrow in order to spend and nor does it need the profits of renationalised industries for us to have public services.  It just needs the political will to deliver them.

The role of government is to create the framework for markets to exist and dictate through legislation how they will function and in whose benefit. It taxes the populace, not to fund its spending but to manage its economic policies, from the redistribution of wealth to expressing public policy and is one of the key tools it can use to manage inflationary or deflationary pressures.

Government not only has the power of the public purse to improve the lives of its citizens it also has the power to legislate to drive its political agenda. All a question of choices which are not dependent on the state of the public accounts. Indeed, not only does it have the power to spend for the public purpose, it has the power to change the rules of the game. For example, it might regulate the financial sector to ensure that when people’s savings of whatever kind are put to work it is done to shift our negative and damaging behaviours towards creating a positive impact on society and our environment instead.

Outcomes are the measure of any government’s success. With the political will it could:

  • create the framework for good quality universal public services provide a social security system which is both not punitive in its functioning but also ensures a decent standard of living for those unable to work through disability, sickness or old age,
  • pay for a just Green transition,
  • offer a Job Guarantee as standard to create price stability and act as an automatic stabiliser for the economy to give people the dignity of proper, well-paid employment when needed.

All of these things are fundamental to the good functioning of society.

What are we so afraid of? A better future for our children? A more sustainable and fairer economy for all? Indeed, a planet for us to live and breathe on? What is not to like? So, when you hear interviewers berating left-wing politicians (who have not quite made the leap into monetary realities) about how they will pay for their progressive agenda ignore those questions and remember instead that a government’s economic record will be defined by how it serves the nation’s economy as a whole, improves the lives of its citizens and how it uses the resources it has at its disposal to achieve its agenda – not whether it balanced the budget.

 

For more in-depth information about how money really works, you can find all you need on our GIMMS website.

https://gimms.org.uk/

 

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The post The time has come to talk of many things; of taxing and spending and an economic system that needs mending.  appeared first on The Gower Initiative for Modern Money Studies.

We don’t need a perfect world; we need a fairer and more equitable one. Understanding how money works is the first step.

Published by Anonymous (not verified) on Sun, 24/11/2019 - 12:02am in

Person at the bottom of stairs climbing from darkness into the lightPhoto by Free To Use Sounds on Unsplash

As the election campaign rolls on and party leaders battle it out on our television screens, the Liberal Democrats commit themselves to more austerity and Paul Mason, left-wing journalist and former music teacher, indulges in some fantasy explanations of how money works. More on that later….

In yet another indication of how the austerity has not only done grave damage to those who least deserve it, but also to the economy, two more reports have been published to add to the already long list exposing the consequences of cuts to public spending.

The Scottish based Poverty Alliance organisation which published its report Righting the Wrongs: A manifesto to tackle poverty is urging the next Government to ‘put solving poverty at the heart of all that it does, including by creating a more compassionate social security system, [and] building a labour market that works for everyone….’

When confronted with the realities of people’s lives through their stories we can see the real tragedy behind the policy decisions and cuts to public spending of the current Conservative government.

Jamie from Glasgow struggling to raise a family on a low income described it as ‘like being stuck in the middle of a spider’s web with no escape route’ and Jackie, a community activist commenting for the Poverty Alliance report, said that ‘more and more people are being locked into poverty by jobs that are low paid and insecure. When people can barely afford to put food on the table and when parents working full-time are struggling to cope, there is something very wrong that we have to put right.

An analysis published by the TUC, also this week, has revealed that the number of children growing up in poverty in working households has risen by 38% over the last decade, bringing it to 800,000 since 2010.

The study also showed that government policies account for the majority of rises in child poverty, with more than 485,000 children (in working households) having been pushed below the breadline, not only as a direct result of the government’s in-work benefit cuts but also as a consequence of other major factors which include weak wage growth and insecure work. The report also noted that over the past decade workers have suffered the most severe wage squeeze in two centuries and although wages have just started to grow, weekly wages are still £14 below pre-crisis levels.

Frances O’Grady, the TUC General Secretary, commented about the report that no child in Britain should be growing up in poverty and cuts to in-work benefits have come at a terrible human cost.

Overall the poverty figures are shocking. As GIMMS reported earlier this year following a report by the Social Metrics Commission, there are now around 14.3 million people living in poverty, of which 8.3 million are working-age adults, 4.6 million children (of which around 2.9 million are in working households as identified in the later TUC report) and 1.3 million pension age adults.

Aside from these shocking statistics which represent avoidable and unnecessary human degradation, the combined effects of government policies and cuts to spending on public services have had a damaging effect not only on the lives of those caught in the austerity crossfire but also on the economy as a whole. A decaying public and social infrastructure and toxic welfare reforms have had a significant impact on poverty and inequality and show clearly in whose interests the government has been acting. The promotion of individualism and self-reliance, along with decreasing state intervention to replace our public infrastructure with private, profit-motivated services has been a long-standing agenda of successive neoliberally inspired governments.

Access to high-quality health and social care, education and training, well-paid secure work and good quality, affordable housing all play a vital role in the health of the nation and its economy. When people are denied those basic support systems it can only, in the end, lead to more deprivation, ill health, hunger, homelessness and increased crime, the consequences of which ripple into every part of society burdening it with both additional financial costs and societal breakdown.

As was reported by the BBC only this week more than 2 million adults are unable to see a dentist either because they can’t afford treatment, find an NHS dentist or get care where they live as a result of underfunding and recruitment problems. It is claimed that many people are being reduced to practising self-dentistry to alleviate the pain of rotten teeth which can cause all sorts of other problems like periodontal disease which can, in turn, lead to an increased risk of heart disease.

After nine years of cutting NHS spending in real terms, creating a pressured working environment for staff, capping their pay, stopping nursing bursaries and driving people away because of stress, senior NHS leaders are warning this week that hospitals are so understaffed lacking sufficient doctors, nurses and other health professionals to provide services that the ‘safety and quality of care are under threat.’ The latest figures show that the performance against key waiting times for A&E, cancer treatment and planned operations have fallen to their worst-ever level and that this could deteriorate even further as winter approaches.

NHS mental health services which have borne the brunt of cuts have become little more than a firefighting service to deal with the ever-growing numbers of people needing support.

Earlier this month the organisation State of Hunger published its report, drawn up in conjunction with Heriot-Watt University and the Trussell Trust. It revealed that more than half of households referred to foodbanks were affected by poor mental health, predominantly anxiety or depression, while 23% of people referred to foodbanks were homeless. The report gives a voice to those people who have paid the price for austerity and welfare reform – the worry about paying bills, keeping a roof over one’s head or having a job which pays enough.

“If I don’t pay my bills, then I’ll get the house taken off me. After paying arrears, I’ve got £8 a fortnight and that’s to pay for gas, electric, water. It’s just impossible, it really is. I go to bed at night wishing I won’t wake up in the morning.”

 

“I’ve used the food bank because I was on such a low income before I got my disability benefit… I had a mental breakdown because basically the amount they give me doesn’t cover the costs of my rent.”

 

Education joins health in forming the backbone of a functioning economy and societal well-being and yet, it too has suffered from crippling cuts to spending. Kevin Courtney, the joint general secretary of the NEU said this week that ‘The future of education hangs in the balance’.  Despite government promises of more money, the School Cuts Coalition made it clear only last week that four in five state schools will be financially worse off next year than they were in 2015 and this will affect schools in areas where there are already high levels of deprivation.

Even with the additional funding promised by government, there will still be a shortfall of £2.5bn in the year ahead after years of already damaging cuts. The consequences for schools are grim. More pupils per class, fewer teachers and support staff and reduced curriculums with subjects like music, language, art and design being cut as a result of the pressure, not to mention the reduction in capital expenditure on schools’ estate which has left it in a bad state of repair and not fit for purpose.

Our children represent the future and yet they are the ones that will bear the brunt of lack of adequate government spending and planning for an education and training system to meet the challenges they will face in the future.

A healthy economy demands a healthy and educated nation as a prerequisite. It demands quality housing, good secure jobs and pay. The last nine years of austerity and forty years of the pursuit of neoliberal dogma have pulled that rug from under people’s feet, leaving them in a world of increasing uncertainty.

It is regrettable in this respect that the notion that the state has a responsibility to ensure the health and well-being of all its citizens through the provision of universal services and other state-provided interventions is being mistaken for a ‘nanny state’ rather than acknowledging the value of such investment in society and its economy.

Whilst government has pursued its handbag economic strategy and ignored monetary realities for the lie of balanced budgets, it has failed in its duty as an elected body to serve the interests of citizens and the economy as a whole.

Whilst pursuing austerity, it has ignored the fundamentals of macroeconomics which it won’t hurt to repeat. Spending, wherever it comes from, creates income for someone else, whether that’s government which starts the ball rolling by creating the money into existence to pay for its needs which flows in turn right down to businesses, working people or even those having the misfortune to be involuntarily unemployed or coping with a disability or illness which prevents them from working. Through its obsession with austerity and lowering deficits at a time when it should have been spending more, it has weakened the economy and wilfully left people without the means to provide themselves with sufficient income to meet their daily needs.

As data from last year shows, it has left British households collectively supporting their spending through reducing savings (if indeed they had any) and taking on more debt. Quite simply government austerity has transferred the burden onto households which as private debt levels rise will prove unsustainable.

The fragile house of cards which represents the economy after nine years of government folly will either stagger on or fall into another recession unless the next government deficit spends sufficiently to promote full employment and serve the public purpose.

In the light of this, it is all the more incredible to note that after Ed Davey, deputy leader of the Lib Dems said earlier this month that Labour and the Tories were ‘writing promises on cheques that will bounce’ they have decided to make austerity their USP (unique selling point) for their election campaign. Yes, you read that right!

In his recent speech he positioned the Liberal Democrats as the ‘party of fiscal rectitude’ and the Conservatives and Labour as the ‘parties of fiscal incontinence’. Davey is proposing to adopt a fiscal rule for day to day spending aiming for current account surpluses in every year of their five-year costings.

With yet more household budget accounting and to meet its objective will require tax rises and yet more spending cuts. Furthermore, on the basis that achieving a surplus is not a saving and removes money from the economy and if our trading partners don’t spend all they earn thus taking even more out of our economy the net result will be a severe recession (as if we weren’t already heading in that direction). A bit of an own goal and a very foolish one at that!

And yet depressingly it has to be said another own goal was scored this week by the journalist and self-styled economist Paul Mason who presented a short promotional video for Novara Media explaining the deficit and debt in the language narrative of overdrafts, loans and mortgages along with that old ‘canard’ about paying for public services by taxing the very rich.

This is indeed ‘fantasy economics’ of the most damaging kind.

In response, the economist Professor Bill Mitchell explains it very succinctly and it is worth printing it here in its entirety:

‘This is the classic ‘soft’ mainstream macroeconomics that assumes the government is financially constrained and is thus not dissimilar to a household.

It is ‘soft’ because, unlike the hard-mainstream positions, it allows for deficits (‘funded’ by debt) to occur in a non-government downturn but proposes them to be offset by surpluses in an upturn, irrespective of the overall saving position of the non-government sector.

None of this framing or language is what I would call ‘progressive’.

It has the hallmarks of the way neoliberals construct the concepts and the narrative.

The inferences are also plainly false when applied to the British government.

  1. It is not financially constrained in its spending.

The constraints relate to real resource availability.

In terms of restaffing the NHS, for example, are there qualified labour resources available? What training would be required? Would this mean that British Labour is also going to be advocating open borders to ensure the staffing is available? [….]

  1. There is no meaningful knowledge that be gained by comparing a household with a home mortgage and a currency-issuing government spending its own currency.

The household is the currency user and the government is the currency issuer.

Totally different constraints apply.

  1. It is false to claim that it is virtuous to ‘tax the rich’ in order to fund essential health and welfare services.

This is one of the worst frames that the progressives now deploy.

The British government might want to tax the rich to reduce their power and influence (exercised via their spending habits) but it never has to do that in order to fund essential services.

The only constraint that exercise involves is the availability of real resources.’

  1. The British government does not have to issue debt to ‘fund’ its deficits. The capacity of the non-government sector to purchase the debt derives from past deficits that have not been taxed away yet.

Even if the government issues debt to match its investment in essential infrastructure to deliver better housing, transport health care, and engage in climate action etc, this investment is not linked at all to the current interest rates in place.

 

There is no meaning to the term “cheap” finance, when the spending does not need to be financed (in the currency the government issues).

The issuing of risk-free debt from a currency-issuing government really amounts to the provision of corporate welfare and no progressive should advocate its continuance.

  1. There is no meaning in saying the recurrent deficit is like an overdraft or the capital deficit is like a mortgage. Those terms gain meaning when applied to units that are financially constrained.

While left-wing progressive parties continue to frame their election campaigns in neoliberal terms and thus erect unnecessary financial barriers to spending that will prevent them from achieving their goals, the public will also remain in the dark about a subject which is of vital importance; how to answer the question about how government really spends, how its policies can be paid for and what  the real constraints are.

That said and despite the deliberate misleading of the public by Paul Mason, the UK needs a progressive government prepared to act in the public interest through investment in our public and social infrastructure and ready to take action to tackle social injustice, ensure a more equitable distribution of wealth and address the biggest challenge we face – climate change.

 

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The post We don’t need a perfect world; we need a fairer and more equitable one. Understanding how money works is the first step. appeared first on The Gower Initiative for Modern Money Studies.

It’s not balanced budgets that will save us. It’s the power of the public purse and our human values.

Person at a demonstration holding a placard with slogan "What lessens one of us lessens all of us"Photo by Micheile Henderson on Unsplash

Charles Dickens began his novel ‘Hard Times’ thus:

“NOW, what I want is, Facts. […]. Facts alone are wanted in life. Plant nothing else and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. [….] Stick to Facts, sir!”

Whilst one might dispute Dicken’s character Gradgrind with his miserable vision of human existence, facts can be very useful. They can trace the human misery caused by 9 years of austerity and the last forty years of a pernicious market-oriented ideology which has led to vast disparities in wealth distribution and caused huge damage to society by encouraging the pursuit of self-interest.  And yet it has to be said as the election campaign gears up, that in terms of monetary reality, of facts there seem to be very few to be had.

As political and economic commentators, not to mention politicians on all sides, emphasise daily their claims that the government finances are like a household budget, the public has largely remained stuck in the quagmire which is presented as monetary reality and distrustful of a political system which has failed them.

Looking at newspaper front pages this week you could be forgiven for thinking that we are headed for bankruptcy if Labour were to win the election or that their spending plans would cost UK households £43,000 each. A ‘reckless spendathon’ is in the offing according to a government spokesperson in a recent BBC television interview.

Aside from such narratives being a fallacy, they are designed to put the frighteners on people who are already suffering financial hardship caused by years of austerity and ideologically driven government policies. Those with a political agenda shore up those false beliefs that borrowing too much will lead to government insolvency. They cynically and callously terrify people that they will be asked to pay for those spending programmes when they will not. This is an establishment that is running scared that their reign of power is coming to an end. The means justify the ends!

It cannot be denied that if we are to escape the worst effects of a coming global downturn, an incoming government of whatever variety will need to implement adequate spending programmes and increasingly fiscal policy is becoming the ‘mot du jour’. However, the message is reinforced daily by all sides of the political spectrum that there are still financial limits to that spending.

Last week Ed Davey, deputy leader of the LibDems said of Labour and the Tories spending plans that they are ‘writing promises on cheques that will bounce’. The very same party that joined in with Tory austerity during the Coalition and voted for public spending cuts and welfare reforms.

In the same week, the Greens promised welcome public investment of £1trillion over 10 years to fight climate change, the money for which it said would come from ‘borrowing’ and ‘tax’ changes.

Then the Chancellor of the Exchequer in a ‘give with one hand take back with another’ message promised to increase borrowing to fund billions of pounds to pay for new infrastructure but then announced three new fiscal rules to ‘control borrowing, to control debt and to control debt interest’.

Stuck in household budget la-la land he said without a hint of jest:

‘like anyone who budgets whether it’s a household, or small business or large business, I know that we must keep track of what we are spending and what we bring in…. We can’t run an overdraft forever on day to day spending, so I can confirm that our first rule will be to have a balanced current budget. What we spend cannot exceed what we bring in.

Never mind that you can build as many hospitals as you like as part of an infrastructure spending programme but if you make up foolish rules about day to day spending those hospitals will remain empty of nurses and doctors and other health professionals to staff them.  And let’s not forget the bailing out of the banks or successive wars funded without a taxpayer in sight.

The same tired old tropes abound about taking advantage of ‘historically low borrowing rates’ and ‘living within our means’ remain the context for Conservative spending plans and figure in one way or another in the language narrative of other parties too.

In a similar vein this week, the shadow chancellor reinforced that same story when he tweeted:

‘The Tories can’t invest in the public services we need because unlike Labour they won’t raise taxes on the super-rich and take on the international tax dodgers’.

The implication being here that he will bring back the magic money tree from the Cayman Islands to pay for our public and social infrastructure.

Even the Leader of the Opposition has suggested that if they don’t tax the very rich, then Labour won’t be able to pay for public services.

As Professor Bill Mitchell commented in a blog in response:

‘The British government does not need to tax the rich to pay for first-class public services. It can do that at any time it can muster the real resources to accomplish that aspiration. It issues its own currency.

It might want to tax the rich because they have too much power but that is quite separate from justifying such an action because the government needs their ‘money’.

Although without doubt the proposals on the progressive left to tackle social inequality, rebuild public infrastructure and address climate change are laudable and indeed vital, it is to be regretted that the arguments for public spending programmes are being reduced to household budget frameworks of monetary affordability, where the money will come from and economic credibility. We have become fixated by the single idea that the country’s economic ‘health’ hangs on whether or not we run a deficit.

GIMMS will say it again. In reality, the only analysis that really counts when deciding which way to vote in any election is not a judgement based on a government’s financial record or whether it balanced the public accounts but what its economic record was.

We as citizens should be examining where the money was spent and who benefited. Did that spending ensure that its citizens were in secure employment and fairly paid, had decent housing and sufficient food in their bellies? Did it create a healthy and more equitable economy in which wealth was more fairly distributed? Did it ensure that the vital public and social infrastructure such as the NHS, social care, education and local government were adequately funded to serve the public purpose and not fill the coffers of private profit? Or was that public money sucked up by the private sector in a big free for all in which the state serves the interests of the corporations rather than the interests of its citizens?

And what about government policies on health, education, welfare spending and the environment? Did they create stable lives by improving the material, financial, physical and mental health of citizens? Did they ensure adequate investment to ensure that the nation can be as productive as possible through good education and training both for present and future generations? And finally, the environment – what actions did they take to address the climate crisis?

In other words, we should be examining what the real economic outcomes were.

After nine years of telling the public that there was no alternative to austerity and cuts to public spending because the coffers were bare, it’s amazing what the prospect of an election can do to turn the spending taps on. And yet the smoke and mirrors, lies and deception about how government spends just carries on relentlessly.

But now it’s all OK (for the moment) the Conservatives have found the magic money tree, cutting the deficit has apparently given them some savings and the fiscal ‘headroom’ to spend. For those that know, this narrative is a fairy tale of epic proportions. For those that don’t, it should be enough to arouse a cynical response by a public which has been at the sharp end of those tax and spend myths which have formed the basis for its policies.

Indeed, only this week the following headlines should serve as the wakeup call for the public about Conservative economic credibility.

‘UK suffers biggest fall in jobs in four years’

‘UK avoids recession but annual growth slowest in almost a decade.’

‘Wage growth slows’

We can blame it in part on the uncertainty caused by Brexit, but the reality is that behind the faceless employment figures published by the Office of National Statistics are the lives of real people who have been affected by the government’s policies and spending decisions over the last 9 years.

To put it in basic economic terms, when a government spends it creates income for the private sector which is then spent into the economy. When it imposes spending cuts it is removing money from people’s pockets leaving them with only three options: Use their savings if they have any, take out credit or go without.

All spending, whether from government or the private sector, equals income for someone. What happens when you take that away? That’s people who lost their jobs in the public sector as local government, the NHS and schools were forced to pare down their budgets as a consequence of public spending cuts. That’s people constrained by public sector pay caps and pay cuts. That’s people who ended up working two or three jobs on low pay to keep a roof over their head and food on the table. That’s people working in precarious employment in the zero-hours or gig economy with no guaranteed decent income or sick or holiday pay. That’s people affected by the reforms to welfare and the introduction of Universal Credit, from those who are unemployed left with insufficient financial resources to make ends meet and those in work but not earning enough to keep their heads above the water to those left struggling to cope because of chronic sickness or terminal illness.

In seeking the nirvana of balanced budgets by cutting spending the Conservative government has not created a healthy economy it has done the very opposite. The statistics are the proof.  Without adequate spending, the economy suffers, and people pay the price.

And yet as political parties present their spending plans and worry about how they will demonstrate their economic credibility the elephant in the room is crashing about trying to make itself noticed. On one note it is pathetic to see the Conservative party take issue with the opposition’s spending plans calling them reckless and unaffordable whilst promoting its own as being fiscally responsible. On another, in their rush to spend, neither party seems to have considered the real resource factor and how that will be managed.

The IFS for all its neoliberal sins ‘gets’ the elephant in the room and recognises that whoever wins on December 12th their spending plans will be dependent on whether they have the right resources at their disposal to deliver.

After 9 years of insufficient spending into the economy to prepare for the future, will there be sufficient people with the right skills to meet the government’s needs? Whether that’s engineers and construction workers to design and build the proposed infrastructure or homegrown nurses and doctors already trained up to service the planned spending on the NHS? Or in these days of climate crisis we might also be talking about the resources needed to deliver the Green New Deal and ensure a just transition not just for those in the rich west but those in the global south whose countries have already been plundered of raw materials and impoverished so that we can maintain our standard of living.

For progressive parties like Labour and the Green Party who wish to deliver a left-wing agenda what they have to do is decide their key priorities, consider the availability of resources and how they could be freed up to deliver a future government’s objectives efficiently and effectively. A case in point this week is Labour’s plan for free broadband which has much to recommend it in terms of bringing communities together in an inclusive and connected society. Journalists and others predictably have asked the question where will the money come from? They have missed the point entirely and should be asking instead how many workers would we need to deliver it?

Ultimately, all sovereign currency-issuing governments don’t need to match their plans to tax revenue or determine whether the markets can lend them the money. The role of government in this respect is not to balance the budget but to balance the economy.

The public needs to understand that it isn’t the government’s ability to tax the rich but its power to run a deficit which determines the health of an economy. As the sovereign currency issuer, the UK government has the power of the public purse to fund the public works necessary to tackle social and wealth inequalities, deal with the current global economic uncertainty, and fund the Green New Deal, should it choose to do so.

However, at home, our public and social infrastructure is in a shocking state of decay caused by 9 years of cuts to public spending and lack of planning. Reversing that decline is not something that just promising to spend can solve in the short term.  There are important issues to consider for the long term which may not fit the short-termism of the political five-year framework and many politicians who have become used to serving other interests.  That is the scale of the challenges we face.

When all is said and done even though the Labour party persists with the household budget myths John McDonnell has it right in terms of what is required not just to reverse the social injustices heaped upon global populations because of pernicious ‘free’ market ideology or the threat to the human species at our own hand. As he said not only must the scale of investment match the scale of the crises we face both in ecological and social terms, but also if we don’t make these investments our future generations will never forgive us.

Let’s leave the final words to Professor Bill Mitchell who wrote a while back:

“My ideological disposition tells me that the pursuit of human values is the only sustainable way of organising and running a world. The neoliberal era has severely undermined that pursuit.

That’s what we must change and urgently if we want half a chance to save ourselves and our children’s children from disaster.

 

Note: GIMMS has a very good resource section on our website which takes you through how money works. From FAQS to resources sheets and external websites, videos and academic papers for those who want to take it further. For an introduction to how money really works follow the link here.

 

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The post It’s not balanced budgets that will save us. It’s the power of the public purse and our human values. appeared first on The Gower Initiative for Modern Money Studies.

Ten things to know about the 2019-20 Alberta budget

I’ve just written a ‘top 10’ overview of the recent Alberta budget. Points raised in the post include the following:

-The budget lays out a four-year strategy of spending cuts, letting population growth and inflation do much of the heavy lifting.

-After one accounts for both population growth and inflation, annual provincial spending in Alberta by 2022 is projected to be 16.2% lower than it was last year.

-Alberta remains Canada’s lowest-taxed province. It also remains the only province without a provincial sales tax.

The full blog post can be read here.

Ten things to know about the 2019-20 Alberta budget

I’ve just written a ‘top 10’ overview of the recent Alberta budget. Points raised in the post include the following:

-The budget lays out a four-year strategy of spending cuts, letting population growth and inflation do much of the heavy lifting.

-After one accounts for both population growth and inflation, annual provincial spending in Alberta by 2022 is projected to be 16.2% lower than it was last year.

-Alberta remains Canada’s lowest-taxed province. It also remains the only province without a provincial sales tax.

The full blog post can be read here.

Genuine Hope. Collective Action.

Published by Anonymous (not verified) on Mon, 28/10/2019 - 2:45am in

Hand holding a dandelion in its seed head stagePhoto by Aleksandr Ledogorov on Unsplash

“Man cannot discover new oceans unless he has the courage to lose sight of the shore.”

Andre Gide

In the week when protests have erupted in countries around the world from South America to Asia, the Middle East and the UK are we beginning to see a real revolt against the prevailing economic ideology? One which has poisoned politics, allowed corrupt behaviour through the influence of global corporations, caused environmental devastation and totally unnecessary and degrading human suffering.

People may not name neoliberalism as the author of their deprivation, but the ascendency of market-driven ideology has left many living in penury, with its associated effects not just on individuals but on societies across the world. Whilst the few live lives of unimaginable luxury, they do so on the backs of those who have virtually become slaves to a rotten and decaying system. The Chicago Boys who experimented in Chile with such destructive consequences have much to answer for decades down the line, where today the country’s economic model has produced vast wealth but left many struggling to manage as this week’s protests there have shown – a situation that has been replicated on a global scale whilst the few continue to gobble up the world’s wealth and resources for themselves.

Can we dare to hope that in the face of rising discontent that those politicians, economists, institutions and even journalists who have brazenly promoted and given this cruel economic system legs will eventually be called to account?  Can we dare to believe that, as the events show in Chile, a million individuals acting collectively can prove a powerful force to be reckoned with?

And yet the UK headlines this week once again make for stark contrasts between those who have lost out and those who have gained through government policy decisions and spending and taxation policies.

Hundreds of people forced to live in caravans added to those eking out a miserable existence living under railway arches, in temporary accommodation or sofa surfing. Two thirds of single parents losing out under the universal credit system adding to those who have already suffered at its hand and fears that it will only add to soaring child poverty rates. Yet more schools opening community food fridges to tackle family hunger caused by in-work poverty and the scourge of low wages adding to the 2000 food banks already providing support across the country. A nurse pleading for help after having ‘nothing left’ after rent, childcare and travel costs and teachers living in sheds or cars and depending on food banks to eat.  Amazon warehouse staff exhausted and under pressure to perform, working 10-hour shifts, falling asleep on the toilet and being forced to join what are euphemistically known as ‘power hours’ to speed up productivity.

One of its staff called it modern slavery and another asked why are people being treated like this when Jeff Bezos is the richest man in the world? In the same vein, when the boss of Deliveroo gets a 57% increase in pay and £8.3m in share options whilst those so-called ‘self-employed contractors’ at the firm work without a guaranteed minimum wage, holiday pay or sick pay and Argos staff get their annual Christmas bonus cut to just £5 by a boss on £3.9m it’s a wonder that people have accepted their servitude with so little protest, up until recently that is.

Are the chickens coming home to roost? And where will it lead us? With people crushed by the burden of debt, low wages and precarious employment, a consequence of government policies, many people find themselves hard pushed to protest as keeping heads above the water becomes the overriding priority in life.  Combine this with a democratic system which increasingly leaves citizens with no real voice, we shouldn’t be surprised that their fears and insecurities are now cynically being exploited by extreme right-wing politicians.

This is not confined to the UK or even the EU. There seems to be a huge chasm between the lived realities of people’s lives and politicians from across the world. Politicians blind to those realities or unwilling to engage with them, many of whom are still defending austerity as if there were no alternative then and would even cheerfully prescribe more of it now should they consider it necessary. The household budget analogy of the public finances persists and has a lot to answer for!

It begs the question whether, in the face of a global domino effect falling towards world recession as China’s economy slows and the US pursues its trade tariff policies, if the same inherent misunderstandings about how a modern monetary system works persist what the consequences could be? Even in the event of a temporary fiscal stimulus, failure to embrace that real understanding will leave future generations poorer in terms of life expectations on whichever continent they live, not to mention the salutary prospect of the destruction of our species on a planet no longer able to sustain us, all on the untruth that any action would be ultimately monetarily unaffordable.

As David Attenborough said this week ‘all these seven worlds are actually one and we are dependent on it for every mouthful we eat and every breath of air we take’. GIMMS has noted before that it is difficult to imagine anyone believing that money is so scarce that we can’t save ourselves, when the real challenges (which are less spoken about if at all) are the actual real resources that will allow a sustainable and just global transition to take place without exceeding the productive capacity of the planet and its citizens.

This week saw a small glimmer of hope as the TUC published its report Lessons from a decade of failed austerity: Getting it right this time’. It rightly challenges the view pushed by many economists and governments across the world that austerity had been the right response to the Global Financial Crash and traces the economic consequences of such policies on the economies of OECD countries and the impacts on workers’ pay. It also contests the widely-held view that there was no alternative to cuts to public spending and that society ‘must simply learn to live with degraded conditions’ on account of the public and social infrastructure no longer being affordable.

It recognises that although austerity thinking is still prevalent in some quarters, a programme of expansionary fiscal policy will be vital to support aggregate demand to counter the effects of a predicted global recession and reverse the damage caused by almost 10 years of cuts to public spending. It recommends that ‘government should expand expenditure on public sector salaries and services, fast track increases in public infrastructure and use fiscal policy as part of a wider plan to deliver ‘sustainable growth’ including investing in the public services families rely on, the skills workers need for the future and a just transition to net-zero carbon emissions’.

Whilst one might want to know more about what it means by ‘sustainable growth’ in a finite resource world, overall the report is encouraging. Its acknowledgement that ‘austerity thinking is the logic of the household budget and omits the impact of government policy on the economy’ is very welcome. But then it spoils it somewhat by the suggestion that ‘on a macroeconomic view government spending strengthens the economy and can improve rather than damage the public finances’ and then goes on to say that ‘increased expenditure should be financed by borrowing rather than increased taxation.’

As people are hopefully now becoming aware, reference to improving or damaging the public finances fits into the tax or borrow narrative of how governments spend which is incorrect. It is also contradictory to the report’s earlier recognition that the logic of the household budget omits the impact of government policies on the economy. The latter is the only measure of the effectiveness of government spending and taxation policies, in other words, who gained and who lost out as a result, not how a government managed its public finances or whether it balanced the budget or achieved a surplus.

The question of how we pay for it is not answered by taxing the rich or borrowing from them. Indeed, as the economist Scott Fullwiler noted this week ‘it’s time for the left to recognise that raising tax rates on the rich a few % to match spending isn’t the same thing as a comprehensive policy to actually reduce inequality. In fact, taxing the rich to ‘pay for’ spending means you need them to stay absurdly rich.’

Only this week, Jeremy Corbyn in a Q&A session invited successful people ‘to be happy with their wealth, but also to share it a bit by paying their taxes, [….] so that our public services are there for them just as much as they’re there for everybody’

Most certainly one should have no objection to the rich paying their taxes for reasons of equity but the constant references to finding the magic money tree in the Cayman Islands or getting rich people to pay their taxes so that we can have public services smacks of Victorian altruism and gives rich people more significance in relation to how governments spend than relates to reality.

Paying for government programmes is achieved by the recognition of the sovereign currency-issuing powers of the government which can authorise its central bank to spend to deliver its political agenda and that applies whichever side of the political spectrum you are on. Labour will be onto a winner if and when the penny finally drops!

The report goes on to discuss the natural rate of unemployment and the theory of NAIRU which is an economic concept that proposes that there is a trade-off between unemployment and inflation. It suggests that when unemployment falls below a defined threshold, wage inflation then price inflation will be triggered.

In the words of Matthew Klein from the FT who is quoted in the report ‘in addition to being morally odious, the theory is empirically unsupportable’. The post-war full employment policies led by the governments of the day was followed by a complete change of tack which for decades has left working people as collateral damage in the service of employers who have been the sole beneficiaries. Whilst there may have been an increase in employment (notwithstanding the levels of underemployment contained within those figures) this has occurred alongside a decline in wages across advanced economies leading to subsequent declines in living standards. Working people have been the losers.

The report, however, suggests that on the evidence, the natural rate of unemployment must be a ‘moveable feast’ as policymakers have had to reassess the Natural Rate of Employment over time. Whilst it is not mentioned in the report it would seem that the next logical step must surely be towards examining the Job Guarantee as a more humane and macroeconomically sensible programme to create full employment and price stability without the associated societal ills caused by people being abandoned to the immorality of unemployment as a government choice. Enabling public sector work at a living wage which offers the dignity of employment and social inclusion must be an improvement, surely?

Let’s leave the final words to Mervyn King the former Governor of the Bank of England who said this week:

‘Another economic and financial crisis would be devastating to the legitimacy of a democratic market system. By sticking to the [..] orthodoxy of monetary policy and pretending we have made the banking system safe, we are sleepwalking towards that crisis. Following the Great Depression of the 1930s, there had been new thinking and intellectual change. No one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas underpinning economic policy. That needs to change’

Those of us who are working to promote a better understanding of how money works within a Modern Monetary Framework are already doing just that and the conversation is just beginning.

 

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