taxation

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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Taxing the rich is only a start, though it’s a good one

Published by Anonymous (not verified) on Sat, 12/10/2019 - 8:18am in

It’s become near-consensus on the social democratic left that you can fund a decent welfare state by taxing the rich and shrinking the military. Sad to say that isn’t true. Those are good things in themselves, and you could pay for some excellent things with that agenda, but it would still be well short of actual social democracy.

I’m defining social democracy as a large and robust welfare state that socializes a lot of consumption through taxation and spending, compressing the income distribution, reducing poverty sharply, capping the political power of the rich, insulating people from the risks of sickness and unemployment, and educating people at low cost, all structured to reduce racial, gender, and other inequalities. It’s not the end of capitalism, but it’s a lot bigger than Medicare for All and free college, as badly we need both those things tomorrow.

We’re sure not spending much on human uplift now. As the first graph below shows, the US spends less and taxes even less than other rich countries. In 2017 (the vintage of most of these stats), US government at all levels (aka general government in fiscal jargon) took in 34% of GDP in taxes and spent 38%. Australia spent somewhat less and taxed somewhat more, but otherwise the US figures are the lowest of the bunch.

Exp & rev

The three countries who are labeled “Scand” in these graphs—Denmark, Norway, and Sweden—spend an average of 50% of GDP and take in 53%. None is very far from those averages, which are 12 and 19 points above US levels respectively. The US lags the averages of the entire OECD, the Paris-based think tank of, by, and for the richer countries (and the source of all these stats), by 4 points on spending and 8 points on revenue.

Some on the left suggest that we could also borrow more, but we’re already doing a lot of that, and to little good effect. Our budget deficit, over 4% of GDP, is the largest of any of the countries shown. It’s nine times the OECD average. The Scandinavians run a surplus, though Norway’s oil gusher distorts that average. Sweden and Denmark run surpluses over 1% of GDP. Australia and Canada run small deficits; Germany, a small surplus. If you listen to some of our more fervent populists and MMTers, to whom deficits are essential for economic health, you’d think these countries would be in a deep slump, but they’re not. And all have lower poverty rates and less inequality than the US.

If you take out interest payments to get what’s known as the primary balance, the US had the largest deficit of any country but France. But you can’t take out interest payments—they can be big. They’re 3.4% of GDP for the US, three times the cost of Bernie Sanders’s free college scheme. That’s just a bit less than Italy, which has a far larger debt relative to its economy. (See top left graph of “spending shares,” a few paragraphs down.) Taking money from the mass of taxpayers and handing it over to mostly rich bondholders is a perverse use of state power.

Deficits accumulate into debt over time. As the graph below shows, while the US debt burden is above the OECD average, it trails debt champs Italy and Japan. Australian and Scandinavian debt levels are low. Surprisingly, though, the effective interest rate (computed as the interest/GDP ratio divided by the debt/GDP ratio) paid by the US—the cornerstone of global capitalism whose government debt it the world’s benchmark—is twice the OECD average, and higher than Italy, a country not known for fiscal righteousness. But when you remember that junk bonds helped put Donald Trump where he is today, it begins to make sense. We’re not the sterling credit we used to be.

Debt

spending

What do governments spend their money on? The graphs below give some idea. (For some inexplicable reason, much of the data for Canada is missing.) As already noted, the US spends a lot on interest paid to bondholders—well over twice the OECD average. The Scandinavian governments are net earners of interest, not payers, though that’s again largely because of Norway’s oil income and the vast investment portfolio it’s endowed.

The US spends well over twice the OECD average on the military, even more compared to the Scandinavians—3.2% of GDP by the OECD’s accounting. According to the US national income accounts, the Pentagon eats up 3.9% of GDP, the difference from the OECD no doubt reflecting different classification schemes. (The OECD uses the internationally standardized System of National Accounts; the US marches to its own statistical drummer.) But that military spending number—which has hardly budged during the Trump years, his braggadocio to the contrary—is just over half what it was during the Reagan years and less than a third what it was at the peak of the Vietnam war. Still, it’s grotesquely high. Taking that near-4% down to the Japanese level of 1% would free up 3% of GDP for nobler pursuits. That’s significant but it’s not social democracy.

Spending

Not graphed here: spending on “public order,” cops, courts, prisons, and firefighting. Unsurprisingly, the US spends a lot on those, a fifth above average and 75% more than the Scandinavians, but the differences are less than 1% of GDP. There’s every reason to slash the regime of “public order” deeply, but it wouldn’t free massive amounts of resources—though of course it would free a lot of people and soften the depraved brutality of American carceral state.

And cutting interest interest payments and radically shrinking the military and “criminal justice” system, which are minima for a better society, still wouldn’t change the public sector’s share of GDP, only redeploy it. Increasing that share would be essential to a serious social democratic program.

Surprisingly, the US spends a lot on health—more than any other country in the graph. More on all this in the near future, but it’s a reminder that public spending on health in the US is already enormous, and comes nowhere near covering everyone. Grafted on top of that public finance system—mainly Medicare and Medicaid—is an enormously wasteful private system that isn’t captured in these stats. That could be euthanized, its cash flows repurposed into a universal public system.

The fourth graph is where American exceptionalism really comes in—the share of GDP spent on “social protection,” that is, classic welfare state programs. In the OECD’s words, these include “sickness and disability; old age (i.e. pensions); survivors; family and children; unemployment; housing; social exclusion n.e.c. [not elsewhere classified]; [and] R&D social protection.” The US spends under 8% of GDP on these things, less than half the OECD average and a third what the Scandinavians spend. Over 60% of the US total goes to Social Security, compared to just over 40% for public pensions in Scandinavia. Despite that, pensions there are nearly twice as generous, measured as a share of GDP, than ours.

Unfortunately, the OECD breaks out social spending in detail for only a subset of member countries, all in Europe. But some rough comparisons are possible, using the US national income accounts. (See graph below.) Scandinavians spend over 12% of GDP on social protection other than pensions, more than four times the US’s 3%. They spend 5% on sickness and disability allowances; the US, little more than 0. They spend over 3% on family and children, things like child allowances and day care; we spend 0.1%, mostly on things like TANF. (The official description of TANF emphasizes not humane poverty reduction, but the promotion of marriage.) They spend 1.4% of GDP on the unemployed, both benefits and retraining schemes; we spend 0.1%. The US numbers are probably a little low, because the national income accounts table these are drawn from (table 3.12, here) may not include some indirect spending on these items, but not profoundly so. There are important things the US state just doesn’t do (publicly funded child care) or does only meanly (TANF).

social protection lines

There are other forms of spending that aren’t captured here. Public employment is 20% of the Swedish total and 15% in the US. Public investment is almost half again as high. Those differences mean government offices aren’t understaffed and dingy, and things in general don’t feel like they’re falling apart.

taxing

How do the Scandinavian states—and others that are more generous social spenders than the US—finance that spending? Not, as we’ve seen, by borrowing. Countries with more generous welfare states than ours borrow far less. Instead, they tax.

Here are some of the principal revenue sources. On some things, like social security and personal and corporate income taxes, the US isn’t an outlier. On others we are. Property taxes, a core financing mechanism for US localities, take up 5% of GDP, over twice the OECD average and over three times the Scandinavian. At 5% of GDP, our taxes on goods and services—mostly value-added taxes (VATs) in other countries, not sales taxes, which are classed separately—are less than a third the Scandinavian share of GDP (16%), and not much larger compared to the OECD average (14%). The difference between the US and the Scandinavians is over 10% of GDP.

Revenue

Yes VATs are regressive. They’re taxes on consumption that hit the poor harder than the rich because the further down the income scale you go, the larger a portion of your income you consume. But their regressivity is more than compensated for in the Scandinavian countries by spending, which not only takes from the rich and gives to the poor, but takes from the masses and gives it back in the form of good public services. It’s a way of socializing consumption to some degree, of taking things out of competitive markets. It makes for a less stressful life than the US, where the normal state is to be just a few paychecks from insolvency. Or worse.

The relationship between the share of the VAT take and spending on social production is impressively close; for the twelve countries shown, admittedly not a huge sample, the correlation coefficient between the two is 0.69. As Lawrence Summers once put it: “Republicans don’t like value-added taxes because they are a money machine and Democrats don’t like them because they are regressive. We will get a VAT when Democrats realize that it is a money machine and Republicans realize that it is regressive.”

social indicators

Here are a few statistical reminders of what all this social democracy can get you. Scandinavians live, on average, over three years longer than Americans—and Swedes, the longest-lived of the three, outlive Americans by almost four. (Danes have consistently lagged their neighbors, by about two years.) As the graph below shows, since at least 1960 (when the World Bank data begins), Scandinavian life expectancy has always exceeded American. The gap was just over three years six decades ago; that narrowed to just over a year in the mid-1980s, and then began widening—gradually at first, and accelerating after 2000 or so. US life expectancy fell between 2014 and 2017, which is almost unheard of among countries not at war or in social collapse; it fell again in 2018, though it’s not graphed here. Scandinavia’s has continued to rise.

Life expectancy

Part of that widening gap, and the recent US decline, can be explained by the insane expense and inaccessibility of the health care system, but it also reflects poverty, inequality, and the stresses that come with both.

These are illustrated in the graph below. (See captions for definitions.) The US has the most unequal income distribution of any rich country for which the Luxembourg Income Study has data, though it still has a way to go to catch up to South Africa, Russia, and several Latin American countries. Much the same can be said for poverty; the US has the highest rate of any rich country other than Israel, though it’s also beaten by a similar set of poorer countries. Getting those numbers down would require some really ambitious social spending.

gini & poverty

can you do it by taxing the rich?

Can you fund a Scandinavian-style welfare state by taxing the rich alone? No.

In 2012, the economists Peter Diamond and Emmanuel Saez published a widely cited paper arguing that the optimal top tax rate for soaking the rich is 73%—optimal in the sense of pulling in the most revenue. Any higher, and avoidance will undo any increase. Who knows? But let’s accept it for now. Working with those numbers, Washington Post wonk Jeff Stein figured that could pull in $320 billion a year at most. Stein also figures a 1% tax on the wealth of the top 1%, pretty much Elizabeth Warren’s plan, would pull in $200 billion a year. Bernie Sanders’s freshly released wealth tax plan would raise $435 billion a year, according to its designers, Saez and his Berkeley colleague Gabriel Zucman, who also designed Warren’s more modest levy. (A popular version of their analysis is here; a more technical one, here.)

Combine those two and you get a revenue increase of $520–755 billion, or 2.4–3.5% of GDP. Scandinavian revenues are 19 percentage points higher as a share of GDP than the US. (Recall that we not only need to spend more, we also need to borrow less if we’re to reduce the tribute paid to creditors.) So these taxes, which are probably what lots of contemporary American leftists have in mind, come only an eighth to a fifth of the way towards closing the gap with the Scandinavians (and it must be said the Scandinavian welfare states aren’t as generous as they were before neoliberalism set in, but they’re still big).

I’m taking these revenue estimates as they are. It seems likely that, were taxes raised sharply in this fashion, a good bit of the targeted money would disappear, and not just because of clever lawyers and accountants and the lure of offshore locations. CEOs, bankers, and star athletes wouldn’t be paid so highly if the money were going to be taxed away, as the experience of the 1950s and 1960s shows. Superstar incomes have flourished because they’ve been so lightly taxed. Stocks, where the very rich earn a lot of their money—a large share of the income of the very rich is from capital gains—would not be so richly valued under a government so clearly hostile to wealth. The ranks and riches of tech bros and hedgies would be radically shrunk.

A few stats about the Forbes 400 will underscore these points. When the magazine first issued it annual list of the USA’s richest in 1982, No. 400 was “worth” $75 million (which would equal $195 million in 2018 dollars), and the whole lot of them together tipped the scales at $94 billion, or not quite 3% of GDP. Last year, the minimum price of admission was $2.1 billion—eleven times the current value of 1982’s minimum—and the whole gang claimed $2.9 trillion, or 14% of GDP. It’s no accident, as the vulgar Marxists used to say, that the list made its debut in September 1982, one month after the great bull market in stocks began—one that, aside from a few stumbles, like the 1987 crash and the 2008 financial crisis, continues to this day. It’s been a riot of accumulation.

A major reason why so much money as accumulated at the top is that policy has been coddling the rich for decades, with assistance from a popular culture that has celebrated them. We want to throw all that into reverse. To reduce the power of the rich requires taking their money away—as Sanders said in introducing the wealth tax, “I don’t think that billionaires should exist.” Stocks and other financial assets would deflate profoundly.

That means you can’t plan for those hoards of money to be a constant source of recurring revenue, a point that Saez and Zucman do not address in those two papers, but which they do address in their forthcoming book, The Triumph of Injustice. As they say—in a short passage quite deep into it—“In the long run, a radical wealth tax erodes top fortunes so much that it reduces the taxes paid by the ultra-rich….” Although that’s a comment about the wealth tax, it could be adapted to high rates on top incomes. The point is less revenue-raising, though you can do some of that, but giving extreme wealth a very radical haircut. Plutocrats will whine about “confiscatory taxation,” and they will be right. And with a reduction in their riches would come a reduction in their political power. Right now that seems like a pleasant dream, but we should be clear on the politics involved.

Which takes us back to the need for broader taxation to fund a civilized welfare state. In the book, Saez and Zucman reject a VAT for the US as too regressive, and propose a tax on all forms of income. The numbers they float are well short of a full welfare state—it’s little more than Medicare for All and free college (both of which, let me say again, we need badly). But regardless of the style of tax and its level, we’d have to raise more revenue, and not just from the rich.

Some might find it impolitic of me to say all this, but you have to be honest with people, otherwise they’ll turn on you for selling a bill of goods. There’s no doubt that adding 3% of GDP to social spending would be a good start — it would improve people’s lives and change their expectations. Elites hate giving the masses anything, lest it increase the appetite for more—and, as Sam Gindin argues, the lowering of expectations has been one of neoliberalism’s great successes.

We could frame the programs financed by taxing the rich as an overture or downpayment and hope that stimulates the appetitite for more. But if we want a seriously better society of the sort outlined in the Green New Deal, then it’s going to take a lot more — and it won’t “pay for itself.” As Ralph Waldo Emerson said, ‘‘nothing is got for nothing.”

Trudeau’s proposed speculation tax

Published by Anonymous (not verified) on Thu, 26/09/2019 - 11:45am in

I’ve written a blog post about the Trudeau Liberals’ recently-proposed speculation tax on residential real estate owned by non-resident, non-Canadians.

The full blog post can be accessed here.

Trudeau’s proposed speculation tax

Published by Anonymous (not verified) on Thu, 26/09/2019 - 11:45am in

I’ve written a blog post about the Trudeau Liberals’ recently-proposed speculation tax on residential real estate owned by non-resident, non-Canadians.

The full blog post can be accessed here.

Taxing Wealth to Create a More Equal Canada

Published by Anonymous (not verified) on Thu, 19/09/2019 - 4:34am in

Tags 

taxation, wealth

This is a longer, wonkier version of a piece I wrote for National Newswatch.

As part of a broader fair tax agenda,
Jagmeet Singh and the federal New Democratic Party have proposed a
wealth tax. This is intended to fight obscene and rising levels of
economic inequality by limiting the concentration of wealth in the
hands of the very rich, who can well afford to pay more, and by
generating new fiscal resources to be invested in equality-promoting
programs such as expanded public health care and student debt
reduction.

A report released by the Parliamentary
Budget Office (PBO) released on September 10, just as the federal
election got underway, confirmed that the wealth tax would raise $70
billion over ten years. Very significant new federal revenues of $6
billion rising to over $7 billion would be raised each year, even
though the proposed levy is quite modest.

https://www.pbo-dpb.gc.ca/web/default/files/Documents/ElectionProposalCosting/Results/32630202_EN.pdf

The NDP wealth tax would be applied at
a rate of just 1% on wealth (assets minus liabilities) above a high
threshold of $20 million. The vast majority of affluent families let
alone ordinary working Canadians would be completely unaffected. Even
a family with $25 million in wealth would pay just $50,000 (1% of $5
million.)

Statistics Canada data for 2016 show
that the median Canadian household (half have more and half have
less) has a net worth of just $295,100 – usually representing
equity in a home and modest savings.

The bottom 20% of families have almost
no wealth at all. To get into the top 10% takes wealth of $1,650,000,
which sounds like a lot but is not untypical of older Canadians with
a mortgage free home in a large city and significant pension savings.
The top 10% hold about 60% of all wealth.

https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110004901

The Statistics Canada data show that wealth inequality has been rising, but understate its true extent since household surveys are unlikely to find billionaires at home, and billionaires do not like to disclose their assets. Economist Lars Osberg estimates that the share of all wealth of the top 1% may be as high as 20% compared to a reported share of about 10% baed upon household surveys of wealth.

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/2008/Quarter_Century_of_Inequality.pdf

For that reason, the PBO study takes into account reports of large wealth holdings such as an annual list of the richest Canadians compiled by Canadian Business. They create a synthetic database using Canadian Business reports, and the Survey of Financial Security. It should be noted that they expect the rich to avoid about one third of the theoretical increase in government revenues through tax avoidance strategies.

The PBO numbers showing that a wealth tax would raise a lot of money again confirm that wealth in Canada is extremely concentrated in the hands of a very small group of the ultra rich. Even a small levy would raise a lot of money since those with wealth of more than $20 Million own a LOT. At these rarefied levels, wealth is made up mainly of financial assets, especially large shareholdings in both public and private corporations. Often, these family fortunes are passed between generations.

David Macdonald of the Canadian Centre
for Policy Alternatives reports that the top 87 Canadian family
fortunes averaged just under $3 billion in 2016, up by a stunning 37%
from 2012 compared to an average increase of 16%. These large
fortunes totalled $259 billion, the same amount shared among 12
million Canadians at the lower end of the wealth ladder. Inherited
family wealth looms large at the very top of the list, and there is
relatively little turnover from year to year

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2018/07/Born%20to%20Win.pdf

Another recent global study finds that
there are 10,840 “ultra high net worth” fortunes of $30 million
or more in Canada and that the total wealth of this group is over one
trillion dollars – $1,100,000,000,000.

https://www.cbc.ca/news/business/canada-wealth-high-net-worthy-1.4814907

Thomas Piketty has famously shown that
the wealth of the very rich tends to rise at a much faster rate than
the wealth of the many, unless strong countervailing political forces
come into play. High levels of wealth inequality also increase income
inequality, and convey massive economic and political power to the
few. Many fear that the ever-increasing concentration of wealth in
the hands of the very rich threatens democracy itself as we return to
the ultra unequal world which existed in the late nineteenth century
and first half of the twentieth century.

Seen in this context, the NDP’s
proposed wealth tax is a needed and quite modest measure. Such a tax
already exists in a few countries, and is being proposed for the
United States by Democratic contenders Elizabeth Warren and Bernie
Sanders. Almost uniquely among major economies, Canada currently
levies neither a wealth tax nor a tax on large inheritances (though
lifetime capital gains are taxed at death.)

Some will argue that the rich “deserve”
their huge fortunes. This hardly applies to inherited fortunes. The
liberal John Stuart Mill famously argued in his Principles of
Political Economy
(Book 2) that a large progressive inheritance
tax should be levied to ensure that private property did not become
too concentrated in a few hands, and in order to prevent economic
advantage from being inherited.

While much is made of the rise of the
high tech billionaire so-called “wealth creators” progressive
economists such as Joe Stiglitz and Lars Osberg in Canada argue that
it is impossible to identify the individual productive contributions
of individuals who work as part of large and complex social
organizations. Quite unlike the textbook economics world of
competitive markets, the actual economy is dominated by large and
powerful corporations run mainly in the interests of their owners,
and share ownership is highly concentrated. These corporations
establish market dominance, drive down wages, fight unions, and lobby
governments to heed their interests. CEOs and other senior corporate
management insiders can and do pocket large incomes far in excess of
their real productive contribution to the enterprise they lead or to
the economy as a whole, and they are required to generate high
profits distributed to the shareholders

The central point is that it is hard to
argue that the distribution of wealth is fair if ownership of capital
is highly concentrated in a few hands as a result of self-enforcing
economic and political power.

Jagmeet Singh and the federal NDP are
to be congratulated for taking the fight for greater economic
equality to a higher level by challenging the growing concentration
of wealth and power in Canada and by showing how a fair tax agenda
can generate the resources needed to pay for a progressive policy
agenda.

Taxing Wealth to Create a More Equal Canada

Published by Anonymous (not verified) on Thu, 19/09/2019 - 4:34am in

Tags 

taxation, wealth

This is a longer, wonkier version of a piece I wrote for National Newswatch.

As part of a broader fair tax agenda,
Jagmeet Singh and the federal New Democratic Party have proposed a
wealth tax. This is intended to fight obscene and rising levels of
economic inequality by limiting the concentration of wealth in the
hands of the very rich, who can well afford to pay more, and by
generating new fiscal resources to be invested in equality-promoting
programs such as expanded public health care and student debt
reduction.

A report released by the Parliamentary
Budget Office (PBO) released on September 10, just as the federal
election got underway, confirmed that the wealth tax would raise $70
billion over ten years. Very significant new federal revenues of $6
billion rising to over $7 billion would be raised each year, even
though the proposed levy is quite modest.

https://www.pbo-dpb.gc.ca/web/default/files/Documents/ElectionProposalCosting/Results/32630202_EN.pdf

The NDP wealth tax would be applied at
a rate of just 1% on wealth (assets minus liabilities) above a high
threshold of $20 million. The vast majority of affluent families let
alone ordinary working Canadians would be completely unaffected. Even
a family with $25 million in wealth would pay just $50,000 (1% of $5
million.)

Statistics Canada data for 2016 show
that the median Canadian household (half have more and half have
less) has a net worth of just $295,100 – usually representing
equity in a home and modest savings.

The bottom 20% of families have almost
no wealth at all. To get into the top 10% takes wealth of $1,650,000,
which sounds like a lot but is not untypical of older Canadians with
a mortgage free home in a large city and significant pension savings.
The top 10% hold about 60% of all wealth.

https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110004901

The Statistics Canada data show that wealth inequality has been rising, but understate its true extent since household surveys are unlikely to find billionaires at home, and billionaires do not like to disclose their assets. Economist Lars Osberg estimates that the share of all wealth of the top 1% may be as high as 20% compared to a reported share of about 10% baed upon household surveys of wealth.

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/2008/Quarter_Century_of_Inequality.pdf

For that reason, the PBO study takes into account reports of large wealth holdings such as an annual list of the richest Canadians compiled by Canadian Business. They create a synthetic database using Canadian Business reports, and the Survey of Financial Security. It should be noted that they expect the rich to avoid about one third of the theoretical increase in government revenues through tax avoidance strategies.

The PBO numbers showing that a wealth tax would raise a lot of money again confirm that wealth in Canada is extremely concentrated in the hands of a very small group of the ultra rich. Even a small levy would raise a lot of money since those with wealth of more than $20 Million own a LOT. At these rarefied levels, wealth is made up mainly of financial assets, especially large shareholdings in both public and private corporations. Often, these family fortunes are passed between generations.

David Macdonald of the Canadian Centre
for Policy Alternatives reports that the top 87 Canadian family
fortunes averaged just under $3 billion in 2016, up by a stunning 37%
from 2012 compared to an average increase of 16%. These large
fortunes totalled $259 billion, the same amount shared among 12
million Canadians at the lower end of the wealth ladder. Inherited
family wealth looms large at the very top of the list, and there is
relatively little turnover from year to year

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2018/07/Born%20to%20Win.pdf

Another recent global study finds that
there are 10,840 “ultra high net worth” fortunes of $30 million
or more in Canada and that the total wealth of this group is over one
trillion dollars – $1,100,000,000,000.

https://www.cbc.ca/news/business/canada-wealth-high-net-worthy-1.4814907

Thomas Piketty has famously shown that
the wealth of the very rich tends to rise at a much faster rate than
the wealth of the many, unless strong countervailing political forces
come into play. High levels of wealth inequality also increase income
inequality, and convey massive economic and political power to the
few. Many fear that the ever-increasing concentration of wealth in
the hands of the very rich threatens democracy itself as we return to
the ultra unequal world which existed in the late nineteenth century
and first half of the twentieth century.

Seen in this context, the NDP’s
proposed wealth tax is a needed and quite modest measure. Such a tax
already exists in a few countries, and is being proposed for the
United States by Democratic contenders Elizabeth Warren and Bernie
Sanders. Almost uniquely among major economies, Canada currently
levies neither a wealth tax nor a tax on large inheritances (though
lifetime capital gains are taxed at death.)

Some will argue that the rich “deserve”
their huge fortunes. This hardly applies to inherited fortunes. The
liberal John Stuart Mill famously argued in his Principles of
Political Economy
(Book 2) that a large progressive inheritance
tax should be levied to ensure that private property did not become
too concentrated in a few hands, and in order to prevent economic
advantage from being inherited.

While much is made of the rise of the
high tech billionaire so-called “wealth creators” progressive
economists such as Joe Stiglitz and Lars Osberg in Canada argue that
it is impossible to identify the individual productive contributions
of individuals who work as part of large and complex social
organizations. Quite unlike the textbook economics world of
competitive markets, the actual economy is dominated by large and
powerful corporations run mainly in the interests of their owners,
and share ownership is highly concentrated. These corporations
establish market dominance, drive down wages, fight unions, and lobby
governments to heed their interests. CEOs and other senior corporate
management insiders can and do pocket large incomes far in excess of
their real productive contribution to the enterprise they lead or to
the economy as a whole, and they are required to generate high
profits distributed to the shareholders

The central point is that it is hard to
argue that the distribution of wealth is fair if ownership of capital
is highly concentrated in a few hands as a result of self-enforcing
economic and political power.

Jagmeet Singh and the federal NDP are
to be congratulated for taking the fight for greater economic
equality to a higher level by challenging the growing concentration
of wealth and power in Canada and by showing how a fair tax agenda
can generate the resources needed to pay for a progressive policy
agenda.

A Brexit free zone. GIMMS reports on the real news: austerity hurts (and what we can do about it)

Published by Anonymous (not verified) on Sat, 31/08/2019 - 9:50pm in

Neon sign slogan For the WorldPhoto by John Tyson Tang on Unsplash

“…under the Covenant, all States parties should avoid at all times taking decisions which might lead to the denial or infringement of economic, social and cultural rights. Besides being contrary to their obligations under the Covenant, the denial or infringement of economic, social and cultural rights by States parties to the Covenant can lead to social insecurity and political instability and have significant negative impacts.”

Chair of the UN Committee on Economic, social and Cultural Rights.

In the news this week the Chancellor Sajid Javid pledges money for schools, the NHS and the police in a pre-spending review announcement. Thanking the British people for their hard work over the last decade he said ‘we can afford to spend more on the people’s priorities – without breaking the rules around what government should spend […]. But at the same time, it’s vital that we continue to live within our means as a country’. Reminding the public that the government mustn’t allow its public finances to ‘get out of control’ he also said that when it came to spending ‘taxpayers’ money’ he would make ‘no apology for challenging every decision and making sure every pound is wisely spent’.

The promise to open the purse strings a tad comes with the same tired old language and false narratives about how money works. A worn-out record endlessly repeated as if to brainwash the public with its truth.

But, if the government keeps repeating the false household budget narratives of tax and spend and fiscal rules then those of us who know differently must keep challenging it, must call it out for what it is. A falsehood which has left many in the country bereft of the dignity and economic security that well-paid works brings, exacerbated by a pared down public service sector which has stripped people of the support they need through good times and bad and in the service of creating a functioning more equable society.

What the Chancellor offers with one hand, he takes away with the other in his reference to living within our means and sticking to the spending and borrowing rules set out by his predecessors. The implication is that as the Tories have been so careful with the public finances they have collected enough pennies in the state piggy bank to give them some room to spend. At the same time, long-suffering citizens get a pat on the back for having sacrificed so much so that the government could get its finances back into order and now here’s the reward for pulling in their belts! Better public services. Except that the price for pulling in our belts has been catastrophic. For the last nine years, spending on public services and welfare has shrunk, hunger and homelessness have increased and our most precious planetary cargo our children, (as reported in last week’s MMT Lens) who will carry the consequences of austerity forward, have all borne the brunt of cuts on the back of the lie. Not a week goes by without proof of the damage that has been caused both to people’s lives and the economy.

Austerity hurts and it was a choice.

It is quite amazing what the prospect of an election can bring forth, as the Conservatives attempt to airbrush their image to hoodwink the public into believing that they have been good custodians of the public accounts and the economy whilst claiming yet again 9 years later (a boring record now) that they had no alternative as they were clearing up Labour’s financial mess. Labour has paid a high price for Liam Byrne’s message left in the Treasury that there was no money left

However, this money on every count from schools, to the NHS and policing, whilst welcome, is too little too late. It cannot make up overnight for the consequences of the last nine years of austerity, but then it probably is not meant to. As Aditya Chakrabortty noted in an article this week about funding for education it also has political aims attached. Not only won’t the £2.8bn reverse the cuts made over the last 10 years, most schools won’t benefit at all since the government has indicated that the cash will go to areas which have been underfunded in the past which just happen (not by chance of course – do you hear the election trumpets?) to be full of Conservative target seats for a coming election.

Chakrabortty also notes that ‘classrooms have been turned into the new frontline of the welfare state, with staff filling in for councils in financial collapse and parents in precarious jobs or terrible housing’. This emphasises the wide-ranging consequences of cuts to welfare spending on the most vulnerable people in our nation from those that are sick or with disabilities to those who are involuntarily unemployed or in insecure, low paid employment.

If MMT Lens readers caught the ITV video report on Thursday evening which captured the raw reality of life for people in Liverpool then it surely must bring a heavy heart to many and pose questions about the Conservative’s economic record.

In Liverpool, one in three children live below the poverty line – that is equivalent to more than 35,000 children. That is a shocking statistic. But statistics don’t tell the full story. Families on the breadline with no reserves to fall back on, living hand to mouth, relying on food banks and parents going hungry to feed their children. A life lived in fear of the knock at the door that might render them homeless.

Shirley Marshall, who runs a community store in Liverpool, commented in the video ‘We’re turning into a third world country, that might sound overdramatic, but I don’t think it is, people have got nothing at all, absolutely nothing’. Liverpool is just one of many towns and cities where similar conditions are occurring. We are failing our children and whilst the government extols the virtue of balanced budgets future generations will pay a heavy social and economic price.

While government continuously lauds from its propaganda towers its employment record reiterating at every opportunity its ‘work pays’ mantra it masks the upsurge in insecure work which is pushing people into the red. It masks the people who are working two or three jobs just to make ends meet as people become trapped in chronic poverty and have to rely on charity to exist. It masks the fact that women, who have been affected most by government cuts to public spending, have to work as many part-time jobs as they can fit in just to keep their children fed, clothed and sheltered. The same women who then struggle during the summer holidays to cover the cost of childcare which pushes them into the red and into debt.

This is a vicious circle which once entered becomes increasingly difficult to extricate oneself from. People are made to feel inadequate, as if they alone are in control of their fate and are not subject to the deliberate and harmful intentions of government policy. The mantra of ‘work pays’ is inextricably linked to a neoliberally inspired blame culture which suggests that people are either feckless and improvident or responsible and good with their money. We become winners or losers in a competitive, dog eat dog world and which one you are is down to your personal qualities and hardworking attitudes rather than the time or place in which you were born and brought up and the government policies which were or weren’t enacted.

In the week when Boris Johnson suggested that patient morale might be improved by hot buttered toast and a national tabloid claimed that health tourists have totted up £150m in unpaid bills which could have funded more nurses, doctors and operations, Javid also promised more money for the NHS.

After having deprived it of adequate funding for nearly a decade, closed hospitals, cut services and staffing levels (not to mention the ones who have left through the intolerable stress caused by the pay cap and endless firefighting) it is simply laughable to suggest that hot buttered toast and employing a celebrity chef to improve food will improve patient morale. After a long line of previous celebrity chefs who failed in their task to improve food quality, the latest appointment will have her work cut out. Last year, figures were released which showed that hospitals are spending as little as £3 a day on food for patients. This at a time when records show that the number of patients admitted to hospital with malnutrition has more than doubled since 2009/10.

The problem of malnutrition is becoming so serious that earlier this year MPs recommended that the government appoint a minister for hunger in the UK (yes you read that right) to confront the growing problem of food insecurity which according to figures affects one in five children.

According to the Commons Environmental Audit Committee, the UK has among the worst levels of food insecurity in Europe and up to 2 million people may be undernourished including those admitted to hospital, care homes and mental health units.

Human Rights Watch, in a report published earlier this year Nothing left in the cupboards’ , examines how the changes to the welfare architecture and austerity motivated reductions in government expenditure on welfare are responsible for the huge increases in the distribution of food parcels through the food bank network to meet the needs of those families in food poverty.

Interestingly, it also examines whether austerity motivated cuts to welfare were a political choice or a necessary bitter pill. It was, of course, presented to the public as necessary to restore the public accounts to health as the new Conservative government rejected Labour’s fiscal stimulus and set the country on its austerity path. As Cameron is quoted as saying at the time ‘The age of irresponsibility is giving way to the age of austerity…The age of austerity demands responsible politics. Over the next few years, we will have to take some incredibly tough decisions on taxation, spending, borrowing – things that really affect people’s lives. Indeed, the authors of the report claimed that ‘reducing the public deficit could be a legitimate aim for state policy and may be genuinely unavoidable’ thus confirming yet again the extent of the misunderstanding about how our money system works. That said it also said that

In carrying out such cuts to spending a state cannot, however, disregard its duty to protect people’s human rights. Even where unavoidable, decisions taken in the context of fiscal contraction should not have a disproportionately negative impact on rights. States are required to assess their plans against their obligations under international human rights law.”

As we are now witnessing, Cameron’s ‘age of austerity’ and ‘responsible politics’ have turned sour. Austerity has touched every aspect of ordinary people’s lives and affected the good functioning of our society as the public and social infrastructure is taken apart and the welfare system stripped to the bone.

It is a vicious circle where low incomes, insecure employment and poor housing, combined with changes to welfare benefits impact on health – which in turn creates more pressures on a health service which is itself crumbling under the strain of austerity and cuts to its budgets. And now, after 9 years of pain, the Conservatives have the audacity to claim that as a result of their careful stewardship of the public finances they have money to spare. Which is a little surprising since in the real world of the state finances governments can’t have money to spare as they can’t save it in the first place.

The front-page headline about health tourism and unpaid bills covered in two tabloids plays to a primed audience and is a distraction from the realities of government austerity policies and their ideological purpose. Firstly, to note that when considering that the total annual spend for the Department of Health is approximately £124.7 BILLION, £150 million is a drop in the ocean!

In this age of austerity which has wrought division and aroused suspicion of foreigners (not to mention immigrants), focusing on health tourism in such a hateful way is a deliberate distraction designed to drive a wedge between people with the suggestion that their tax money is being diverted to pay for treatment of foreign visitors. Aneurin Bevan, the founder of the NHS was clear in his essay ‘In place of Fear’:

“The fact, is of course, that visitors to Britain subscribe to the national revenues as soon as they start consuming certain commodities, drink and tobacco for example, and entertainment. They make no direct contribution to the cost of the Health Service any more than does a British Citizen’

As our NHS is being carved up and reorganised to create a US-style Medicare health service shaped as Integrated Care, how convenient it is to focus on hot buttered toast and health tourists to stir up animosity. While the real prize is being sliced and diced into private hands the public has been blinded by emotive arguments with sleight of hand in mind.

The idea of ‘taxpayers’ money’ is a divisive one and intended to be. It separates us into categories of hard-working people or shirkers, citizens or foreign visitors and immigrants. Instead of seeing human beings, we see money and entitlement.

With better knowledge of how government spends, we can challenge that story. Indeed, unless we do challenge these false narratives about how government spends then the future could be a bleak one for us all, but most especially our children’s children.

We can point to the fact that the government as the currency issuer, is never short of money and neither needs tax revenue or to borrow before it can spend.

We can point to the fact that from a macroeconomic point of view austerity was always the wrong path given that spending whether by government or the private sector equals income to someone. It is that which keeps the economic wheels turning.

We can point to the fact that the government made a deliberate choice to restrict funding to pursue an ideological agenda under the guise of creating financially sustainable public finances and public sector services, but which had nothing to do with monetary realities.

We can point to the fact that contrary to the ‘There is no alternative’ mantra which has been thrust into the public consciousness on a daily basis, that there is one. It starts with asking fundamental questions of those who suggest that our future is dependent on financial considerations. It starts with challenging the notion that we can’t afford the vital programmes needed to deal with climate change and rising inequality.

We can show that a government has choices which are not related to balancing books. We can demonstrate that it’s not money that constrains government spending but resources. We can illustrate how government can put them to work to deliver public purpose; human and planetary survival in the first instance and in the second to address the huge inequalities that have arisen as a result of government policies designed to fill the pockets of the rich at the expense of the majority.

As one of the US Presidential candidates pointedly noted: ‘If the environment were a bank it would have been saved already’. The same could be said of poverty and inequality.

Let’s get informed and let’s get cracking.

If you have questions and want further information on these important issues you couldn’t do better than exploring our website. It has all the information you need from the basic to more in depth knowledge.

Give us a whirl and you won’t regret it.

 

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September 28 @ 2:00 pm – 5:00 pm – book your free ticket here

 

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The post A Brexit free zone. GIMMS reports on the real news: austerity hurts (and what we can do about it) appeared first on The Gower Initiative for Modern Money Studies.

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