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The 2021 alberta budget

Published by Anonymous (not verified) on Sat, 13/03/2021 - 1:04am in

On 25 February 2021, Jason Kenney’s United Conservative Party government tabled its third budget, announcing very few major changes to either spending or taxation, while also projecting a deficit of $18.2 billion for the 2021-22 fiscal year.

I’ve written an 900-word overview of the budget here.

If there is one thing the last year has taught us it is that the Government is never short of money

Published by Anonymous (not verified) on Mon, 08/03/2021 - 6:02am in

“Do we want to be a society that is supportive, that is inclusive and compassionate, where it is acknowledged that not all can prosper, where those who are most vulnerable, most in need of help, are not seen as lazy or scrounging or robbing the rest of us for whatever they can get? Where we do not turn our backs on those facing hard times, we do not abandon them or exploit their weakness, because they are us.

We leave no one behind, we only say we have crossed the finished line when the last of us does, because no one is alone and there is such a thing as society.”

Michael Sheen, speaking at The People’s March for the NHS, Tredegar, Wales

 

Woman holding a placard with the slogan "Clapping won't pay my bills" as NHS workers protest for a pay riseImage by Tim Dennell via Flickr Creative Commons licence

On Wednesday, the Chancellor Rishi Sunak got up to the Dispatch box to deliver his Budget. As usual, the devil is in the detail, which we’ll come onto later, but at any rate, you couldn’t come away without the impression that there will be a future price to pay for the Government’s huge spending bill.

More than once, the Chancellor talked about fiscal responsibility, emphasising the record amount of borrowing, and suggesting that without corrective action ‘it would be the work of many governments, over many decades, to pay it back’. And whilst it would be ‘irresponsible to withdraw support too soon,’ at the same time it would be ‘irresponsible’ to allow our future borrowing and debt to rise unchecked.’ The ‘fiscal freedom to act’ was dependent on healthy public finances the Chancellor opined, and affordability would be the measure by which any future spending decisions will be made.

Trying to sound sincere by attempting a direct appeal he said, ‘I want to be honest with the public,’ then went on to suggest that there was no alternative to beginning ‘the work of fixing our public finances’. In other words, the government’s coffers are running on empty and we need to replenish them and pay down our debts.

If at this point you’ve lost the will to live, then it would be understandable, particularly if you have been a regular reader of the GIMMS MMT Lens. With false narratives about how governments spend, the public is being prepared for those ‘hard choices’ that the Chancellor has already promised. It is however economic illiteracy at its best both in terms of getting the economy back on its feet and importantly monetary realities.

Debt doom-mongering by the Chancellor will likely have the reverse effect to the one intended. For those who have been lucky enough to have saved over the past year, with such uncertainty and the prospect of higher taxes, who is going to be cracking open the champagne or booking their luxury holiday in the Maldives? Maybe a possibility for some as we come out of lockdown, but not a done deal and there is still much uncertainty. And as for those working people who are already on lower incomes, in debt or potentially facing the prospect of losing their jobs in the near future, spending will be the last thing on their minds.

After 10 years of damaging public sector spending cuts, employment insecurity and the rise in poverty and inequality arising from it, which has affected all sections of society (except for the very rich) the expectation of more pain will more likely send people scurrying for safety rather than planning a big spending spree.

Littered throughout the speech were the usual false household budget narratives which have defined Treasury speak for decades: debt and deficit reduction, taxing and borrowing, affordability, debt burdens on future generations, hard choices and fixing the public finances. Weasel words which do not reflect monetary reality.

Whilst the government has indeed used its fiscal firepower, if somewhat selectively, to protect the economy over the last year, its price is couched in that of sound finance, or how we pay for it. It is time to call this narrative out for what it is. Economic twaddle. The real issues are not repairing the finances, as the Chancellor has repeated endlessly and which is parroted by economists, institutions, and journalists alike, but how can we use existing real resources to create a fairer, and more sustainable economy in the aftermath of the pandemic given the huge challenges we face in addressing inequity and climate change.

As a nation, we have choices to make and once again the question can be reduced to asking what sort of society do we want to live in and how can we deliver it? Over a decade, our public infrastructure has been laid waste and the tragic and unnecessary consequences laid bare.

As a result of a toxic economic ideology, the private sector has been promoted as the wealth creator, and vast amounts of public money have seeped into private profit rather than public delivery. And yet, strangely, at the same time, the question of affordability only applies to publicly delivered and managed services. Not to the corporations whose bank accounts have swelled with no transparency or accountability.  And nowhere has that been made clearer than in the Chancellor’s Budget.

Aside from the already damaging consequences of government spending choices, which have decimated public services, capped wages and decreased employment security, the question of how we improve the lives of ordinary people remains largely unanswered. Despite the empty words and posturing in Johnson’s and Sunak’s plans to level up society. The pressing question of addressing climate change also remains in the margins of urgency.

On closer inspection, underneath Sunak’s spending promises to keep the economy afloat over the next few months lies a different story. Whilst the Universal Credit uplift has been retained and despite calls for it to be made permanent, the Chancellor has only secured it until September, leaving huge uncertainty in the lives of people already hit by previous changes to social security benefits which have driven increasing poverty, hunger, and homelessness.

Through the Chancellor’s decision to freeze income tax thresholds, ordinary people will be hit with a sneaky income tax rise, whilst the increase in the minimum wage to £8.91 an hour from April is scarcely a giveaway for people already on low wages and struggling to make ends meet. With 700,000 people already in arrears on their rent, over a million in severe debt and a rise in destitution, not to mention the prospect of a council tax rise of 5% to add to the woes, the Chancellor has shown not financial skill or prowess but revealed his lack of macroeconomic credentials.

By concentrating on the false trope of ‘fixing the finances’ he has failed to address the key financial problems being faced by large sections of the population; both as a result of current and also previous spending decisions. Add to that the impact of further job losses with, according to the IPPR, more than half a million employers facing bankruptcy, remembering that one person’s spending is another’s income the future is looking ever more depressing for many.

With no additional funding for public services and a further £4bn of spending cuts to be added to the £11bn already announced, austerity it seems has not gone away.  The pay freeze already announced last year in Sunak’s spending review is a kick in the teeth for 2.6 million workers, which includes millions of teachers, police and other workers who have been on the frontline during the pandemic and was described by Sunak as ‘fair and proportionate’ given that private-sector wages had been falling, hours cut or redundancies made.  A question of equity? No! Pitting public sector workers yet again against the private sector, reinforces not only the fake message that the public sector is only affordable in a prosperous economy, but also allows working people to be distracted from their common cause – the class struggle. It also distracts from the reality that it is the government that that has the capacity to spend, as the currency issuer, and to set prices through its legislation.

In the light of the proposed 1% pay increase for the NHS, to add injury to insult Nadine Dorries suggested that nurses ‘do their job because they love their job’. The Health Secretary, Matt Hancock, then went on to defend the measly sum on the basis of financial affordability. Aside from the extraordinary dedication of our nurses, doctors and other health workers over the last year, which has been reduced to goodwill by Dorries, as many in the profession have said, ‘you can’t live on claps’. GIMMS echoes the words of Rachel Clarke, a palliative care doctor and author who said:

‘The government insists a proper NHS pay rise is unaffordable… It’s claptrap of course. It is a political choice. […] If the prime minister can afford to spend two-thirds of the entire NHS annual budget on a very fast train, he can also afford to reward NHS staff with a real-terms pay rise. The fact that he has chosen quite deliberately not to do so speaks volumes.’

Indeed, but what was also missed out of the Budget speaks even more volumes. In the week that one of the UK’s largest care home companies announced that it was to sell off dozens of its homes, the Chancellor failed to make a mention of the catastrophic state of social care and has yet again put the problem onto the back burner.

As the sector faces financial problems due to falls in occupancy as a result of COVID-19, and combined with reductions in fees from the councils who fund them, who are cash strapped themselves due to funding cuts, the on-going viability of the current care home infrastructure is at risk.

Although the increase of 5% on council tax will allow 3% to be used for funding social care, this is yet another example of what happens when private companies delivering public sector services can no longer turn a profit. This not only leaves people high and dry worrying about where they might spend their remaining years, it also begs the question as to why private companies are involved at all?  Residential care should be funded adequately at central government level and be returned to public provision, locally provided for the interests of all concerned. There has been much discussion on finding solutions to the problem of funding social care which usually boil down to monetary affordability. Deficit spending and rising public debt have become the bogeymen upon which all spending decisions are taken. And in the orthodox model of how money works, someone will have to pay, i.e. in higher taxes.

And yet, the reality of the situation is as Stephanie Kelton noted in her book ‘The Deficit Myth’ published last year:

‘The country’s real deficits are in healthcare, jobs, infrastructure, education and the climate.

It seems that no lessons are being learned from the previous 10 years of public sector cuts, and their effects on the economy and the focus on balancing public accounts rather than the economic well-being of citizens will continue to wreak devastation. In the same breath as announcing that the ‘economic emergency’ caused by Covid-19 had only just begun and would cause lasting damage to growth and jobs, he is talking about how we pay for it. These are mutually exclusive positions.

The greatest omission in the budget was an absence of clearly articulated green measures. This was an opportunity for boldness, but instead, it was a damp squib! Promises of action make for good propaganda but according to research by Vivid Economics much more needs to be done to meet environmental targets and the Chancellor failed to put flesh on the bones.

As work by economists including Joseph Stiglitz has shown, green spending could create jobs and provide economic benefits as countries struggle to lift their economies out of the Covid-19 recession. And yet, whilst the government waves its environmental credentials as a host for COP 26 to take place in the UK in November, at the same time it is sitting on the fence over the opening of a new coal mine in Cumbria. Jobs are an important consideration, but as Fatih Birol from the International Energy Agency told the Guardian countries must forsake coal as a matter of urgency and avoid repeating the mistakes of the 2008 financial crisis.

We need as a matter of urgency to follow a more sustainable path for a green recovery, not stampede for growth at any cost! We cannot return to the false normal that we had before Covid-19 arrived on the scene.

In the light of rising unemployment, particularly amongst young people who have suffered over the course of the last year, a properly targeted green stimulus could tackle it through green initiatives to provide jobs and training focused on renewable energy and environmental conservation. Combined with the implementation of a job guarantee to ensure that no-one is left behind on the unemployment scrap heap, such initiatives could revitalise the economy by putting human and planetary well-being at the top of the agenda. But instead, as the UCL Institute for Innovation and Public Purpose suggested in a recent blog ‘The Treasury is reverting to free-market economic orthodoxy, relying on business and the housing market to do the heavy lifting’.

To conclude, it is an irony that with such huge challenges ahead, that on both the left and the right of the political spectrum Mrs Thatcher’s dictum ‘There is no such thing as public money. There is only taxpayers’ money’ is still alive and thriving.

But as GIMMS Associate Member, Neil Wilson put it in his budget preamble:

“If there is one thing the last year has taught us it is that the Government is never short of money”

But why is it always presented as a hard choice? Balanced public accounts or sustainable human and planetary flourishing? There is an alternative to this narrow and destructive vision of the future. And it is one that if we fail to grasp the message that monetary reality brings, we will betray our children and grandchildren who will pick up the real cost of not acting.  It will not be a monetary one. It will be one of planetary destruction and human decline.

In the words of Naomi Klein:

“Because, underneath all of this is the real truth we have been avoiding: climate change isn’t an “issue” to add to the list of things to worry about, next to health care and taxes. It is a civilizational wake-up call. A powerful message—spoken in the language of fires, floods, droughts, and extinctions—telling us that we need an entirely new economic model and a new way of sharing this planet. Telling us that we need to evolve.”

 

 

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The post If there is one thing the last year has taught us it is that the Government is never short of money appeared first on The Gower Initiative for Modern Money Studies.

Paying Taxes with Trophic Money: Watch Out for Environmental Backfires

Published by Anonymous (not verified) on Fri, 05/03/2021 - 5:33am in
By Brian Czech

I didn’t set out to coin a phrase, but “trophic money” will be far handier than “money derived pursuant to the trophic theory of money.” The trophic theory of money is that money originates via the agricultural surplus that frees the hands for the division of labor into all the other economic activities, most basically manufacturing and services. It’s a theory of money that reflects not only the trophic structure of the economy—with manufacturing and services built upon a base of agriculture and extraction—but the fact that money is meaningless unless we have an agricultural surplus at the trophic base.

No surplus, no money. This explains why money originated in regions equally known for the origins of agriculture and predictable food surplus (for example, Mesopotamia, Lydia, and the Yellow River basin of China). It also explains why some of the first records of environmental deterioration come from the exact same regions (most notably Mesopotamia and the Yellow River basin).

The reason, then, for referring to “trophic money” is to keep in mind this trophic structure, and the fact that truly “generating” money entails an ecological footprint. In fact, corollary number one of the trophic theory of money is that the quantity of money—and GDP—indicates the amount of agricultural surplus and related activity at the trophic base of the economy. “Related activity at the trophic base” includes the extractive activities such as mining, logging, and commercial fishing.

 


Snip from a CASSE infographic on the trophic theory of money. (Credit: CASSE)

In other words, GDP is a solid indicator of environmental impact because, as a measure of trophic money spent, it’s a measure of the agricultural/extractive footprint.

Using the phrase “trophic money” in sustainability writing is analogous to using the phrase “fiat money” in economic justice writing. At this point in history, almost all money is fiat money, especially in the narrow sense that legal tender is no longer backed by gold. The adjective “fiat,” then, is hardly essential. Yet many authors favor the phrase “fiat money” in order to drive home the point that bankers have an unfair advantage over everyone else.

The adjective “trophic” trumps “fiat” in the salient sense that all money is and must be trophic money. No money originates in the absence of agricultural surplus, and no money retains value (or even relevance) in such absence.

A Primer on the Philosophy of Taxation

Taxes are commonly used to incentivize or, more directly, disincentivize certain behaviors that society has come to recognize as undesirable, unseemly, or unsafe. Of course, taxes are also used for generating public finance. Alongside the federal budget, the tax code comprises fiscal policy and, in an ideal democratic world, reveals a wealth of information about the values we share.

In the hands of liberal politicians—and as conservatives love to lament—the line becomes blurry between disincentivizing bad behavior and generating money for pet projects. Yet liberals often defend certain taxes (especially on the rich) on the grounds that they will actually spur GDP growth. Liquor sales might contribute to GDP, but an alcoholic public is unproductive. Therefore, the argument goes, we should tax alcohol not only to protect the health of drinkers and the lives of innocents (such as drivers and pedestrians), but also to grow the economy faster! If you’re a steady-state liberal, you’re probably for the former and certainly not for the latter. (If you’re a steady-state conservative, you’re for neither.)


All taxes are not created equal. (Image: Pixbay License, Credit: wal_172619)

When it comes to the environment, things get a little more complicated. Environmental problems such as pollution and habitat loss are considered “negative externalities.” No one pays the costs of pollution in the market. Rather, we all pay—often with our health—outside of, or “external” to, the market. The costs are diffused, in other words, among the general public, while the polluter accrues all the financial benefits of the polluting activity. Taxes are often prescribed, then, to “internalize” the costs of pollution. A tax on carbon is the most prominent example today.

With Sustainability and Justice for All

Environmental taxes help to rectify the injustice of polluters profiting at the expense of the public. In a nation priding itself in the maintenance of justice, you might expect to see environmental taxes passed left and right. They are not, however, because of a systematic political challenge: The benefits of polluting activities are concentrated while the costs are diffused. Not only that, but the benefits are concentrated in the hands of powerful, lawyered-up corporations while the costs are diffused among a collection of “little guys”—individual citizens.

This “diffused costs, concentrated benefits” policy arena puts corporations and pro-growth interests at a huge advantage. They are motivated to retain their profits and power, fighting against any challenger if need be. Meanwhile, very few of the little guys and gals—busy as they are (often working for powerful corporations)— are motivated to fight for the bit of environmental improvement their efforts might possibly lead to. The little guys aren’t politically stupid, either; most of them realize it will take concerted action by a large number of compadres to make any difference in the activities of the polluting industries.

Furthermore, in many cases of pollution it’s not at all evident how bad the problem is. Hardly anyone knew about the ravages of organochlorines (such as DDT) until scientists at the University of Wisconsin somewhat luckily stumbled into organochlorines as the culprit that nearly extinguished the bald eagle, the peregrine falcon, and other ornithological icons. Similarly today, how many of us have even heard of endocrine disruptors? Maybe you have, thanks to scientists such as the late Theo Colburn (also the founder of TEDX). But, can you spot one in your environment? Can you feel what the lot of them is doing to your nervous system? Can you diagnose your problem and trace the source all the way back to the polluter(s)?

Of course not. Frankly, it takes a whale of an education these days just to keep abreast of the chemical threats to the environment, wildlife, and human health. Who’s got the time and money for that?

It all sounds really unfair, doesn’t it? The fate of posterity might just rest in the hands of highly educated and sincerely motivated little guys and gals who assemble for purposes of constructing class-action lawsuits and lobbying for environmental taxes!

Into the Teeth of the Trophic Conundrum

Alas, even if we succeed in passing a very broad sweep of environmental taxes, we still have a problem, Houston. What if those corporations are so driven by revenue that they decide to actually pay all the taxes entailed by their polluting activities? In other words, they are not disincentivized from such activities, but rather incentivized into more such activities simply to pay the taxes without losing net revenue.

And of course, they’ll be paying the taxes in trophic money, as all taxes are, because all money is trophic. Sensing the problem?

Now, let’s consider a less obvious challenge. Let’s say those corporations are indeed disincentivized to some degree, such that their polluting activity declines somewhat. They also have to pay the taxes corresponding with the remaining polluting activity. How do they do that? A smorgasbord of cost-cutting measures might come into play, but that will only get them so far. Chances are these corporations will be incentivized by the tax burden to develop additional product lines or service activities. In other words, they will try to retain or increase the level of profits they had prior to the enactment of the tax. If anything, their economic activity will amount to an even higher level, because now they need the additional income to pay the new tax.

Income, of course, in trophic money.

Through the ecologically clouded lens of neoclassical economics, and with no understanding of trophics, this scenario would be considered a “win-win.” We lessened a pollution problem without impacting profits, and we generated public finance! Yet through the lens of ecological macroeconomics, especially the trophic theory of money, we’ve robbed Peter to pay Paul, probably while polluting just as much, and certainly while being pressured into more agricultural and extractive surplus at the trophic base.

Who’s Peter and who’s Paul? Peter is the polluting industry. While it ended up maintaining its profits, it took a lot of effort, re-investment, and probably a little luck. Paul is the government, which now has bigger coffers for government expenditure, also known as consumption.

Paul has more trophic money now, while Peter has about the same. The net effect is GDP growth; that is, more environmental impact at the trophic base of the economy.

Why did we probably end up polluting just as much? Because the corporation had to conduct other types of economic activities to compensate for the partial loss of its original activities. So, for example, the corporation isn’t pumping out as many PCBs, but now it’s emitting more greenhouse gases.

Most importantly for our purposes, neither Peter nor Paul can be considered in isolation of the broader economy, its tax code, and its trophic structure. For the economy at large, Peter is essentially the entire supply side; agricultural, extractive, manufacturing, and service sectors all bundled up in their respective trophic levels. Paul is government in the aggregate—federal, state, tribal, local—and is a major contributor to GDP.

With all the production, consumption, and taxes being paid for with trophic money.


Environmental taxes can backfire in the fast lane of GDP growth. (Image: CC BY 2.0, Credit: Chris Waits)

If the tax code is replete with “environmental” taxes that actually stimulate the Peter-Paul complex into even more economic activity—GDP growth in other words—we wind up with less biodiversity, more congestion, higher levels of stress, etc. ad nauseum. We wind up closer to limits to growth, in other words. That’s the trophic conundrum: Levying environmental taxes leads to the environmental impact incurred in the process of generating the (trophic) money to pay the taxes.

I am not saying environmental taxes are always and everywhere a bad idea. If they lead to a substantial reduction of a carcinogen, for example… well, that speaks for itself. Clearly, however, the trophic theory of money poses a challenge for economists to develop some ecological rigor in assessing the marginal benefits of environmental taxes.

Perhaps some taxes will not only disincentivize particular polluting activities, but also tap some brakes on GDP. That would be steady-state fiscal policy. It’s up to economists, ecologists, and ecological economists to identify the conditions under which a tax may serve for brake-tapping purposes, in addition to crimping the stream of a particular pollutant.

We can wish it weren’t true, but all money is trophic money. In lay terms, you can’t buy your way out of environmental impact and limits to growth. You might be able to tax your way closer to a steady state economy, though.

The post Paying Taxes with Trophic Money: Watch Out for Environmental Backfires appeared first on Center for the Advancement of the Steady State Economy.


The Budget should be about building a just society, not balancing the books.

11/03/2020. London, United Kingdom. Budget Day . 10 Downing Street. Chancellor of the Exchequer Rishi Sunak holds up the red box outside Number 11 on his first Budget.Picture by Harriet Pavey/ No 10 Downing Street. Crown copyright 2020 via Flickr

Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.

John Maynard Keynes

 

The burden of the national debt hangs heavy; or so the economists, politicians and journalists want us to believe. In a Dispatches programme that aired this week on Channel 4, ‘Britain’s £400bn Covid Bill: Who will Pay?’ you could be forgiven for thinking that the game is up and we’re on the road to financial collapse unless we get our public finances back on track.

There would be an eventual price to pay as a result of all the money the government had borrowed to cover the costs of extra benefits, furloughing and business support schemes, a former Labour Chancellor Alistair Darling suggested. Our national debt had grown scarily larger than the overall size of the economy. According to the presenter, the magic money tree had financed the huge cost of the pandemic (erroneously referring to QE as the magic money tree even though it cannot be described as money printing and injects no new net financial assets into the economy – find out more here). Alistair Darling, who was referred to as having planted the original magic money tree back in the late noughties as a response to the Global Financial Crash, was apparently alarmed that it had become a forest and warned his audience that if not now, there will be a future reckoning. Indeed, the Chancellor confirmed on Saturday, in advance of the Budget, that the country’s finances were exposed and that there will be a future price to pay for the high levels of spending and borrowing. The fear mantra continues.

Since Britain’s lockdown, the economy, according to the presenter, had struggled to generate tax, with the direct implication that this had had an effect on the government’s ability to fund its spending, which then had required it to borrow vast sums to cover its deficit.

He asked what the options were to remedy the situation and restore the public finances to order? Tax rises? More austerity? Or kickstarting growth through investment in hard infrastructure through even more borrowing? And could that last option lead to bankruptcy in the end, even though, as so many of us know now, a sovereign currency-issuing government never needs to worry about insolvency, providing its liabilities are in its own currency.

The consequences of all the options discussed in the programme reflect the general media conversation which is currently dominating the run-up to the Budget on March 3rd.

Raising corporation taxes, implementing a one-off wealth tax, a windfall tax on profits, or hitting pension savers with a tax on their pension savings. All are posited as being potential mechanisms to boost the Treasury coffers to fill the financial black hole caused by the pandemic. Sunak is, according to some sources, considering raising Corporation Tax. However, whilst some companies have clearly benefited from the pandemic and seen a rise in their profits as a result, that will not be the case for many companies. In short, increased corporation taxes would affect many small and medium-sized businesses that are already struggling, especially in the face of the massive corporations that pay little or no corporation tax in the UK.

Such a decision could further stifle the economy and leave those companies with no option but to increase prices, lay off their staff or close down. Tax increases with the aim of balancing the public accounts would be a death knell for an already declining economy, at a time when politicians should be pushing hard instead to reduce the tax burden on all workers to rebalance the economy and make it fairer.

More austerity as a potential solution would not only also be unpalatable, given the damaging consequences of previous cuts to public sector services and local government, but would also further impact on an already decimated public and social infrastructure. If nothing else, the pandemic should have demonstrated beyond all doubt to the nation the vital nature of our public and social infrastructure and what happens when you cut spending on it. The economy, which reflects the lives of real people, suffers.

The final option discussed was stimulating regional growth through government investment in hard infrastructure, as part of the government’s so called ‘levelling up’ promises. It was suggested that it would generate the taxes to repay the debt and ensure that UK Plc would be ultimately better off. Once again, we have the incorrect suggestion that the government can be compared to a business and must manage its accounts like a company balance sheet. It is not. Although it is counterintuitive to most people, money is created by the government from nothing and unlike businesses does not need an income or to borrow to spend on day-to-day expenditure or infrastructure investment.

The programme then topped off with the usual fear-mongering idea that ‘money printing’ on this scale could spark inflation and/or a financial crisis. Zimbabwe or Venezuela awaits! As if it were ‘money printing’ in itself that creates inflation, rather than spending beyond the productive capacity of the nation. Whilst inflation is the only real limitation to government spending, the current economic climate is unlikely to produce it.

With unemployment already high (the jobless rate is at its highest since 2016) and likely to rise even higher over the coming months, along with the prospect of yet more business failures, it is highly unlikely that high inflation or Zimbabwe is on the cards, even if Andy Haldane the Chief Economist at the Bank of England, has suggested that interest rates may have to rise. Even his own colleagues on the Monetary Policy Committee at the central bank disagreed with his analysis. The economy is on a knife-edge and will be for some time to come. After 10 years of already punishing austerity, which has kept wages low, reduced living standards and cut spending on the public infrastructure serving the nation, the pandemic has, and will continue to add to that economic pain. A recovery is likely to be slow and painful without sufficient government intervention.

The whole premise of the argument presented in the programme is that government spending is constrained by its tax revenue or the ability to borrow to cover the deficit, which in turn leads to public debt, which will at some point in time lead to ‘hard choices’ at some future Budget. The vision of the Chancellor and his Treasury Team pouring over the public accounts and wondering how they can keep the Conservatives’ reputation for sound finance intact, is a powerful one, that is currently being exploited day in and day out as Budget Day approaches. Raising corporation tax, a stealth tax on wealthy pensioners, a one-off wealth tax, all grist to the mill in the discussion about what the Chancellor might do after the huge round of government spending, to reinforce his fiscal reputation as a sound manager of the public finances.

At the same time as Rishi Sunak is working on how to get the public finances back in order and pay down the debt, those on the left are continuing to promote endlessly across social media, the idea that we need to raise the taxes of the rich (in this case through Corporation Tax, wealth taxes or a tax on profits) in order to be able to spend on an economic recovery.

Last week, it was the Labour leader Keir Starmer proposing Recovery Bonds, or using the savers’ money, to fund the recovery. This week, it’s getting the rich to pay for it. According to the IPPR, which published its reportTax and Recovery: Beyond the Binary’ this week, we can pay for a sustainable recovery by raising taxes on the wealthy. Let’s tax the rich for equity, removing purchasing power and the influence their wealth affords them, but please let’s stop telling people it pays for stuff! It doesn’t. Using such redundant household budget narratives begs the question as to whether the left really want to create the more equitable and sustainable economy that they seek. In promoting reliance on the wealthy to achieve their objectives, they forego any claim to progressive politics.

In its favour, the report suggested quite rightly that the UK tax system is in serious need of reform because, ‘It is inefficient, unfairly taxes labour more than capital, exacerbates inequality, and fails to shape the economy in a sustainable way’. These are indeed the right arguments to make, and are fundamental to real societal change and the creation of a fairer, more equitable society. And yet those arguments are still couched in the household budget narrative that government needs our taxes in order to spend:

‘…in the aftermath of the pandemic, tax increases will be required in order to put public finances on a sustainable footing in the medium term. This will likely include addressing increased funding needs for public services such as health and social care. The exact size of this will partly depend on how quickly the economy bounces back (which in turn depends on the size of the stimulus this year).”

Once again, the implication is that our public services are dependent on the health of the economy, when instead it is the other way around.

Whilst one understands that people rightly feel that the rich should shoulder their fair share of the tax burden, they do so on the misunderstanding that these taxes pay for our public and social infrastructure, from which we all benefit, rich or poor. However, we are not beholden to, or dependent on, rich people for creating a better society through the payment of taxes or indeed trickle-down of wealth. We are dependent instead on a government with the political will to create that society. Over decades, the political, economic and media establishment have promoted sound finance over human well-being as if there were no alternative.

The Dispatches programme, while asking how we can pay the Covid-19 bill, then went on to cover the extraordinary consequences of the past year. But it made no specific connection between previous government legislative and spending policies and the rise in poverty and inequality, which is a phenomenon which predates Covid-19 and indeed can be traced back decades. GIMMS has covered these in many previous blogs.

The National Institute of Economic and Social Research indicated that the number of UK households living in destitution had risen from 0.7% of all households in 2019 to 1.5% in 2020. The NIESR Director, Professor Jagjit Chadha told Dispatches:

As a result of lockdowns, levels of destitution seem to be rising across the country. But what’s terribly worrying is that in certain regions – in the North West in particular – we might see some 4, 5 or 6 per cent of the population living in destitution,”

 

In places where income levels are relatively low compared to other regions, an economic shock drives more people into destitution and poverty. We’ve also been looking at the demand for food banks and that’s gone up at a really worrying rate over 2020. And I don’t see that that’s going to fall this year, particularly if furloughing or other forms of income support stop over the next month or two,”

There are no magic bullets. We have to be realistic and we might make mistakes along the way. The future is built on uncertainty. However, it is within the capacity of a sovereign, currency-issuing government with a real vision for the future to start making a difference. We could have a real road map for the future instead of Boris Johnson’s meaningless rhetoric.

A government that was really interested in ‘levelling up’ and making people’s lives better, would not only be investing in hard infrastructure, training and education to bring jobs to facilitate a green and sustainable transition, but also reinvesting in the public and social infrastructure which has been decimated by decades of rationalisation, cuts and privatisation.

As part of a proactive economic strategy, it would also commit to full employment policies, introduce legislation to ensure a proper living wage with better terms and conditions of employment, and introduce a Job Guarantee to manage the inevitable cyclical nature of the economy. It would ensure that the needs of those unable to work, for whatever reason, were provided for to allow a dignified and rewarding life. Nobody should have to rely on food banks or charitable donations in order to have a decent life. Nobody should have to feel that they are responsible for their poverty – the great neoliberal lie of meritocracy which has become embedded in the public consciousness. The government has the tools to ensure economic well-being for its nation.

This moment of great change offers an opportunity. Aside from the vast inequalities that exist, climate breakdown is no longer a distant threat; it is bearing down on us at great speed. We must address these challenges as a matter of urgency. GIMMS has indicated more than once that we need to initiate a conversation about our priorities. More consumption accompanied by more real resource and human exploitation by global corporations? Or a different choice? One with a collective vision for a better future, in which the government plays a greater role in addressing those challenges, and through its taxation and other policies, ensures it has sufficient real resources to create a fairer and less stressful existence for all, whilst ensuring the sustainable and efficient use of the nation’s resources.

After a year of great uncertainty, pain, suffering and death of loved ones, with a prospect of yet more to come, and life-changing choices to make, we have to decide what the nation’s priorities, and our own as families and individuals, should be.

 

 

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The post The Budget should be about building a just society, not balancing the books. appeared first on The Gower Initiative for Modern Money Studies.

Recovery Bonds – The very opposite of what is needed.

Seedling sprouting from the soilImage by Neville Kingston from Pixabay

“The same rule of self-destructive financial calculation governs every walk of life. We destroy the beauty of the countryside because the unappropriated splendors of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend.”

John Maynard Keynes

 

As the Chancellor’s March Budget draws ever closer, there is no shortage of comment or recommendations by media pundits as to what its content should be. The question on people’s lips is how can the Chancellor raise revenues without wrecking the post-Covid recovery. Opinions are varied, ranging from higher taxes sooner or later, to another round of cuts to public sector spending to ‘get the public accounts back into health’. As if the consequences of the Great Financial Crash in 2008, and the austerity which followed when the Conservatives came to power in 2010, are not burned into the collective memory, the public is treated yet again to another round of the tired mantra of ‘How are we going to pay for it?’

Whilst the Chancellor has pumped huge sums into the economy to prop it up over the past year (even though that support has been selective, left some sections of society in financial distress and seen huge sums of public money being poured into private profit) the deficit and debt remain the bogeyman waiting in the shadows to justify unpalatable solutions, which will most certainly add to the nation’s pain, not reduce it.

Douglas McWilliams, a Director at the Centre for Economic and Business Research, suggests being ‘honest’ with the public about taxes having to go up at some point, says the government should encourage the rich to pay their fair share as a moral imperative, and claims that having worked with the public sector for many years, there is still plenty of inefficiency that the Chancellor could squeeze to close part of the gap.

Putting aside the issue of the hugely inequitable distribution of wealth, which needs addressing as a matter of social justice, the fact is that tax does not fund government spending, wherever it comes from, not even from the pockets of the rich. Public spending arises as a politically derived decision, not relating to the efforts of the bean counters in the treasury and their budgeting skills, but to the economic ideology which currently prevails. One which has been guided for decades by neoliberal thought which favours the primacy of the market (never mind that the market is a creation of the state, not a freestanding phenomenon to be obeyed at all costs) and monetarist orthodoxy which suggests that government spending is limited by tax revenue or the ability to borrow. Neither of which reflects monetary reality.

Furthermore, over the last 10 years, cuts to public sector spending have decimated public services and local government. Cuts which have impacted on and severely constrained their ability to meet the current challenges and will continue to do so without a change in public policy and funding.

Whilst further rationalisation might suit the current government, being intent on privatisation and pouring public money into private corporations with complete disregard for transparency and public accountability, the end result is aiming only to serve the bank balances of those corporations. Not that of the public interest.

The direction of travel is clear. Without any protest from the public, we are witnessing the potential end of publicly paid for, managed, and delivered services, accountable to Parliament and ultimately the electorate, in favour of a continuing alliance between the government and the corporations that it serves.

Earlier this week, the IFS issued a press release entitled ‘Look to the Budget to secure the recovery, not fix the public finances’. Whilst recommending quite rightly that the Chancellor set out plans for supporting the recovery, offsetting the impacts of Covid-19 on inequalities, and allocating substantial sums to health, education, local government and justice, in the next breath it suggests, despite all those fine aspirations, that the public finances were ‘likely on an unsustainable path’ which will need to be addressed at some unspecified time in the future. It jumps on the usual orthodox bandwagon of government being able to ‘borrow’ at extremely low rates of interest, but at the same time suggesting even modest rises in the cost of borrowing would impact on public debt, and put further strain on the public finances.

In the eyes of its Director Paul Johnson, abandoning austerity whilst at the same time expressing an aim to balance the books, will bring about an eventual ‘reckoning’ in the form of big future tax rises if growth is not fast enough to tackle the fiscal deficit. Once again, we have an accounting description of the public finances which treats income (in the form of taxation) and expenditure as if they were like those of a business or a private individual relying on an income to spend.

The bottom line is always, mistakenly, that at some time in the future when the economy bounces back into health, action will need to be taken to restore the public accounts back to balance. Even though the government as the currency issuer does not depend on taxation to spend, or borrowing to cover the deficit, and that deficits in themselves are not necessarily the bad things we have been led to believe, that is the narrative that finds its way relentlessly into the public arena and is reinforced daily so as to ensure the public don’t forget it.

The policies of successive governments, often pursued regardless of the damaging economic outcomes for many people whilst creating vast disparities in wealth, have arisen both as a result of the promotion of fiscal responsibility and the ideologically driven doctrine of market supremacy. The consequences of this harmful, decades-long narrative on society have been brought into the public gaze over this last year. GIMMS has covered them endlessly in its blogs since its launch in 2018. Consequences including low wages, insecure employment, unemployment and underemployment, all of which impact on people’s standard of living; leading to rising hunger and homelessness, ill health and increased crime.

Combine this with a decaying public and social infrastructure through lack of public investment, and you have a recipe for societal, not to mention environmental, breakdown.

Which makes it all the more a contradiction in terms when the IFS and other organisations write reports or launch reviews aimed at securing a better understanding of how inequality arises. A case in point is the IFS Deaton Review of Inequalities which was launched a year and a half ago, in which Sir Angus Deaton raised the astounding possibility that ‘inequalities may prove a threat to our economic, social and political systems unless they are tackled effectively’. A statement that declares the obvious, but often fails to make connections between the rise of inequity and government policies.

At the same time as arguing for a better understanding of how inequalities in health, income, wealth, educational opportunity and family life affect people’s lives, and seeking to identify the forces that combine to create them, 18 months on even as Covid-19 has added to pre-existing inequalities, the IFS is choosing to frame its arguments within the context of limited monetary resources and hard choices to be made, maybe not today, but in the future.

It seems to be quite confused as to the forces that have created this societal dissonance and inequity, although the elephant in the room is staring them right in the face. The economic policies of successive governments, which have given precedence to the notion of balanced accounts rather than economic well-being.

The premise that inequality is harmful to society is the right conclusion, but, according to the IFS, solving it may be more problematic in the future, given the already dire state of the public finances. Jam today but bread and scrape tomorrow. Everywhere you look the same paucity of thinking hinders real change.

Yet again this week, as the pundits try to outguess each other as to the Chancellor’s budget plans, the pros and cons of a wealth tax have been the subject of discussion in the media. Norma Cohen, an Honorary Research Fellow at Queen Mary University of London, whose PhD thesis was entitled ‘How Britain Paid for the War: Bond Holders in the Great War 1914-1932, argued in an article in the Financial Times that an Excess Profit Duty of the type implemented in 1917 to help pay for the war, should be considered today to deal with the ‘gaping deficit’ which has occurred as a result of the pandemic.

Such a tax, she suggests could be useful in thinking about how Britain will repay its debt, by allowing the government to extract higher revenues from businesses who have been able to ‘exploit the effects of the pandemic whilst shielding the weakest’. In a time when some sectors have profited hugely from the pandemic leaving others with staggering losses, and when the widespread inequality which predates Covid-19 has been exacerbated by it, equity is clearly an important consideration. But we should disregard the suggestion that such a tax could be revenue-raising, either for funding spending or paying off public debt.

In short, let us not indulge in the household budget nonsense which imagines that the treasury needs tax to fund public services or to repay the enormous sums which it has spent over the last year. If we are to make arguments for taxation, let us make the right ones. Not indulge in spurious arguments which claim we depend on the largesse of the excessively wealthy for the public and social infrastructure which society and the economy needs for its health and well-being.

  • Tax to drive the currency by creating demand for it.
  • Tax for equity and wealth redistribution through appropriate tax regimes.
  • Tax to remove the excessive purchasing power and influence wealth brings.
  • Tax to create fiscal space, meaning to make room in the economy to spend on essential services, when otherwise there would be a shortage of real resources and consequently, rising inflation.
  • Tax to drive essential behavioural change.

But let us put to one side the tax funds spending mantra. It doesn’t. Saying so endlessly won’t change the facts.

The measurement of a healthy economy is how much the government policies and spending decisions have done to improve people’s lives and create a fairer and more equitable society. Not whether the government managed to collect sufficient tax or balanced its books.

While the debate continues about the coming budget and what it will mean for the economy and people’s lives, Keir Starmer, the Labour leader, gave a speech this week that could be described as less a ‘A New Chapter for Britain’ and more of ‘Back to Business as usual.’ With no mention of a Green New Deal, he suggested that working with business would be a central plank of his leadership and that businesses would have to play an essential role in dealing with social responsibilities and the climate emergency. Plus ça change and all that!

A fairer society cannot be created by companies whose rationale for existence is to make a profit. A fairer society can only be created by a government with the will to do so by its spending and legislative decisions. Exploitation of working people and the planet’s resources require the government to be the arbiter on behalf of their electorate, not work hand in glove with corporations to service their greed. Haven’t we seen the consequences of the current government’s actions? Democratic governance is the only mechanism for defending citizens against the unchecked greed which is a shameful and unnecessary feature of economic life.

Under Labour’s leadership, he also added that its priority would always be financial responsibility. ‘I know the value of people’s hard-earned money – I take that incredibly seriously’ he said. Whoa! Labour spending taxpayers’ hard-earned money wisely. It seems that Labour, like other progressive parties, still have no understanding of the modern monetary realities and prefer to keep their heads firmly in the sand of orthodoxy, rather than spend the time up to the next election building a case for deficit spending without all the smoke and mirrors rigmarole of taxing and borrowing.

His big innovative idea, which was praised in some quarters, is his proposal for Recovery Bonds. A totally absurd scheme which not only demonstrates ignorance of macroeconomics, but also how governments that issue their own currency really spend. In an allusion to war bonds, he suggested that a future Labour government would spend the money raised through their issuance on rebuilding local communities, jobs, businesses and infrastructure, giving ‘millions of people a proper stake in Britain’s future.’

Let’s first put this proposal into a historical context. During the second world war, the government sold war bonds. They were not for the purpose of financing the war as one might have been led to think, but were offered as a mechanism to curb inflationary spending when the economy was already at full capacity/employment fighting the war. It allowed the government to purchase all the resources it needed to fight the war and manage inflationary pressures at the same time.

As the economist John Maynard Keynes made clear at the time, the money the government removed from circulation through offering War Bonds did not go anywhere and did not fund the war. Furthermore, with the present-day economy in a depressed state, which is likely to continue for some time to come, maybe years as our experience with the GFC showed, and made worse by economically illiterate years of austerity, this is not the moment to encourage saving. We need the exact opposite to recover and grow. As the saying goes one person’s spending is another’s income. What we need to do though is consider what that spending consists of. Will it be transitory, short term consumption which does nothing to add to our happiness, or useful spending,  contributing to creating a better, healthier planet and a sustainable mode of living?

As in the post-war period we need the government to spend, as only it can, on rebuilding the economy and deliver a Green New Deal by committing to full employment as a policy choice through a Job Guarantee and the restoration of the role of government in public service delivery. Doing this does not require the issuance of Recovery Bonds it just requires political will. The mistaken idea being perpetuated is the lie that the government has to borrow our money to do nice things. That lie has already done much damage.

Furthermore, what is being suggested is that asset-rich people can put their money in a bond (which goes nowhere except into a savings account) and get interest paid on top at maturity. Professor Bill Mitchell has a phrase for when big corporations buy them. Corporate Welfare. This is at a time when the richest half of the income band has increased their savings, whilst the poorest have fallen into debt. If people want safe places to save, then fine (but at current bond rates it’s scarcely going to be a steal). But let’s abandon the notion that the government needs their money.

GIMMS Associate Member Neil Wilson provided an MMT Lens perspective on the Labour Party’s proposal for Recovery Bonds this week:

“All that happens is the balance sheet of the commercial bank shrinks and a Gilt is swapped for a Banana Bond. Not one extra penny is added to the Consolidated Fund by the process.

Because, of course, money from the Consolidated Fund comes via votes in Parliament not by flogging cheap gimmicks to the public. If Starmer wants money for any project, all he has to do is put a Supply Estimate in and get Parliament to vote it through. And that funds the project. Each time, every time – in the same way it has been done for at least 150 years.”

 

 

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The post Recovery Bonds – The very opposite of what is needed. appeared first on The Gower Initiative for Modern Money Studies.

The “Market” is no solution for the NHS – or for any public service.

Published by Anonymous (not verified) on Mon, 15/02/2021 - 7:20am in

Graffiti art of a femal NHS medic wearing a mask and gloves making a heart sign with her signsPhoto by Colin D on Unsplash

The difficulty lies not so much in developing new ideas but escaping from old ones.

John Maynard Keynes

 

This week we begin our MMT Lens with a subject which, while not directly linked to monetary realities, is one that is connected to the toxic economic orthodoxy which has corrupted the public policy of successive governments for decades and is now culminating in the demise of the National Health Service as many of us have known it.

A decade of severe cuts to spending has left the NHS on its knees. This was a result of the bogus claims that in 2010 the Conservatives had no option but to implement cuts to public spending to get the public finances back in order, otherwise the country risked bankruptcy. The era of commitment to the false concept of sound finance began with huge cuts which affected every area of public service delivery and was used to justify the reforms and market-driven frameworks which ensued, leaving the NHS where it is today; ready for takeover by the private sector.

On the 5th of July 1948, the NHS was launched by Aneurin Bevan. It was the jewel in the crown of the government of the day. It brought hospitals, doctors, nurses, pharmacists, opticians, and dentists together under one umbrella to provide care, free at the point of delivery. Since that time much has changed. Dentistry and opticians became chargeable in 1952, and in recent decades successive governments, beginning with that of Margaret Thatcher, began to attack the principles enshrined in the creation of the NHS, of a publicly funded, managed, delivered and accountable service.

Over time, those principles have been smudged and the real political aims disguised by numerous rounds of reforms, implemented by successive governments, which created a fragmented NHS. An NHS behind whose logo lie a myriad of private or voluntary sector companies, both managing back-office operations and providing clinical services. Reforms from the introduction of the internal market by Margaret Thatcher, to Tony Blair’s continued changes (breaking an election commitment) which promised private healthcare providers a stronger presence in the NHS. The reforms were sold to the public by the claim that they would drive up the quality of service and offer choice, but, in fact, they opened the doors to the Health and Social Care Act 2012 which allowed NHS contracts to be put out to tender in the private sector.

Since that time, further reforms implemented by the ‘at arm’s length’ organisation NHS England under the direction of Simon Stevens (a former employee of the US healthcare company United Health) have aimed at moving the NHS towards a US-style integrated care system.

This week, following the leaked draft of the government NHS White Paper, journalists misled the public by claiming that it would bring about the scrapping of privatisation and competition introduced by Andrew Lansley’s reforms. The reality is something quite different. Boris Johnson ‘taking back control’ of the NHS, is yet another smokescreen for bringing a long-held objective to fruition.

The White Paper makes it clear instead that it will not lead to a reduction in the role of the private sector. It will increase it and indeed make it easier for the private sector to function within the NHS without all the bother of tendering for contracts. The deliberate drive to fragment the NHS has left it a shadow of its former self. Its logo, originally symbolising the positive change in the government’s relationship with its citizens, has become nothing more than a logo of no substance.

As the government has poured vast sums of public money into private contracts during the pandemic with little transparency or accountability, it has destroyed the validity of the claim that government has no money of its own, even though it continues to frame its spending in household budget economics. With the prospect of many more hundreds of billions of pounds of public money being spent on new independent laboratory networks and funding private hospitals to clear NHS waiting lists, it is clear that there is no scarcity of money. What is even clearer is that the government has made a political choice about where public money should flow to.

As the currency issuer, it could have made a political choice to invest long term in public health provision. Instead, the government has abandoned all pretence that as an elected body it has a duty to serve its citizens. It has used its monetary capacity to deliver its market-driven aims, which not only have given even more power and influence to big corporations through light-touch regulation, but also poured public money into private profit to keep the wheels of capitalism oiled.

At the same time, it has, also by political choice, left the public sector – health and social care, public health, and local government in a state of collapse, struggling with the consequences of 10 years of cuts which left the country unprepared for the devastating scale of the pandemic. Any claimed additional money is but a drop in the ocean in terms of what is needed to restore the NHS to a properly functioning service delivering public care. And Captain Tom’s efforts, laudable as they were, serve yet again as a distraction. We clapped for the NHS while it was sinking beneath the waves.

Deborah Harrington, director of Public Matters and Advisory Board member to GIMMS, describes government plans in an article in The Tribune this week:

“Boris Johnson’s health team is presenting this White Paper as the antidote, claiming that it gets rid of privatisation and the market, when it does neither. The White Paper does not herald a return to public service: to imagine that it could, would be to propose a political U-turn of unprecedented magnitude – a free-market government turned socialist overnight.

She goes on to say, in a very personal statement which we should all heed:

“I’m not just a patient now – I write and research on these matters myself. But as a patient, I’m worried. As a mother and grandmother, I am devastated to know that the range of care available to me throughout my life will not be guaranteed to my children and grandchildren. The NHS was an extraordinary gift – a gift squandered since by governments prepared to mislead the public on this most precious and important issue, because corporate approval means more to them than the public good.”

 It is important to note at this point that the roots of this process lie in decades of neoliberal ideology and its tentacles which have spread around the world through organisations such as the IMF, the World Bank, and the World Economic Forum.  As Stewart Player, the author of ‘The Plot against the NHS’, indicated in his article published by the Socialist Health Association in 2017:

[the] “basic strategy now adopted for the NHS in England has its origins in the business-dominated international policy circuit, of which the WEF is the apex, rather than in either the Department of Health or NHS England – let alone in the creative input of local communities, doctors and nurses […] What a comparison of the FYFV with the WEF reports suggests, instead, is that what is now planned for the NHS in England is not a home-grown response to meet distinctively English circumstances, which the FYFV presents itself as being, but what the global policy-making elite at Davos sees as a way of avoiding further growth of spending on publicly-provided health care.

 We are at the mercy of a global system which puts profits above people, and in this case, patient care. We are at the mercy of a group of people who claim, falsely, that money is scarce, and that public provision at its current levels is unaffordable, whilst at the same time cultivating a culture of private profit-based provision.

While our NHS slides into a potentially irreversible situation, as Covid-19 allows the government to use the pandemic to drive its agenda forward as quickly as possible, the consequences of years of government policy compounded by almost a year of the relentless gloom and indeed sorrow continue to play out.

It beggared belief to witness video footage filmed this week in Brent and Glasgow which showed residents queuing to access food banks or soup kitchens in freezing temperatures.  It was described rightly by many as shocking and humiliating and reminiscent of the Great Depression in the 1930s.

Journalists and other commentators have decried food poverty as if it were a discrete phenomenon, rather than asking the question as to why so many people are going hungry in one of the wealthiest countries in the world, notwithstanding the current crisis.  As GIMMS has commented many times the solution to hunger is increasingly seen as a charitable one – public donations to food banks or supermarkets distributing food through various organisations (to reduce waste as much as to feed people).

It is a situation which is being normalised in society.  At the exits of supermarkets, we are invited to donate a bag of pasta or a few tins of something – soothing our collective conscience perhaps.  Hunger and the poverty from which it originates predates Covid-19 and is the direct result of the market-driven ideology which is pursued by the government through legislation, spending and policy decisions which keep wages low and increase job insecurity. In other words, political decisions to serve business needs rather than those of citizens.

Nobody needs to go hungry, but we are institutionalising dealing with it through charity rather than government action.  Decades of neoliberal propaganda have demonised people by shifting blame to individuals, while in an act of sleight of hand, the real culprits are released of any responsibility for the state of the nation. Whilst at the same time, the coffers of private companies and politicians’ friends become bloated with public money which should be going into public provision instead.

Although we are told regularly it is a question of monetary affordability, it is not.  It is a question of what we want to prioritise in our society given the limitations that real resources pose. If we want better public services, to reduce inequality or deal with climate change then we will have to consider how we share out those resources in such a way as to deliver them for the greatest good possible rather than serve the greed of the few.

In the short term, as Yeva Nersisyan and Randall Wray of the Levy Institute pointed out in a paper which was referred to in a Guardian Editorial earlier this week:

[the] “government is engaged in relief, not stimulus, spending. It is offering much-needed assistance to the devastated balance sheets of households, school districts and local governments. Rescuing public services, making sure people do not starve and building COVID-19-testing systems is not an economic stimulus but a necessary antidepressant.”

In the longer term, the challenges are even starker. Addressing the vast inequalities which were created as a result of the pursuit of market dogma and the looming climate crisis bearing down upon us, begs an important question about how we deliver a ‘just, equitable and inclusive’ transition to a sustainable economy.

Currently, as politicians spew their climate rhetoric, Boris Johnson claims he is committed to action and the public express support for real change, there is also a desire to restore normality after such a gruelling year. This week Andy Haldane (and the Chancellor before him) invited the public to indulge in a spending spree with their savings once the pandemic releases its grip on the economy. Are they inviting us to return to our old spending patterns for short term gain? Putting aside the fact that for many people there are no such savings, and many have only increased their debt, face unemployment or future job insecurity, those with savings may prefer a more judicious approach in the short to medium term if they feel uncertain about where the economy is headed or indeed the planet!

This is an opportunity to reimagine what is important with concrete proposals for change. Growth is being touted as the mechanism to overcome the economic consequences of the pandemic. But what sort of growth? The destructive sort which has already been laid bare by the realities of an already over-exploited planet where huge wealth, poverty and inequity exist side by side or a radical rethink to how we live our lives. Consumption which brings transitory pleasure or creating a world that is sustainable, puts protecting biodiversity at the top of the agenda and focuses on human well-being rather than human and planetary exploitation.

In an article in the Guardian this week the economic commentator Larry Elliott suggested one option is to leave it to the market. But haven’t we had enough of the god of the market and its undelivered promises which have also brought about huge disparities in wealth, crushing poverty and inequity?

The WEF’s Great Reset posits a solution but in reality, positive as it is presented, it just leaves the same oligarchs and philanthropists in place directing the orchestra in their own image for their own benefit and a smaller role for public provision through elected government.

We make no excuse for raising these issues again and again in our blogs. It may seem like a broken record but there is a huge amount at stake for future generations and not so future.

It boils down to chumocracy, revolving doors and corporate control or the institution of a functioning democracy. The possibility that people can elect a government to deliver public purpose and create a public and social infrastructure to serve the public good instead of public money being siphoned off into private profit. Currently, the latter situation looks to continue as global corporations greenwashing their way to more power and profit consolidate their power through those seated in parliament who approve it.

We need a new way of envisaging well-being and it is only government that has the monetary and legislative firepower to create the change we need, should it have the political will to do so. It may seem that the human will to commit to real change may be in the balance but as Elliott notes in his article ‘The need for change is glaringly obvious and the opportunity is there too. That opportunity must not be squandered.’

And yet whilst the country and indeed the planet faces some exceedingly difficult challenges, the media oracles continue this week with their usual warnings about the level of government debt and ask how are we going to pay for the astonishing amounts the government has spent so far to manage the ongoing economic fallout from the pandemic and deliver government promises relating to promised societal ‘levelling up’ and dealing with climate change?

These questions dominate the discussion in the media and beyond on a weekly basis. Rishi Sunak, having already promised not to increase income tax, national insurance and VAT is running out of possibilities to bring the public finances back into balance, according to the economic pundits. An increase in Corporation Tax perhaps? Or a wealth tax which could raise up to £260bn in revenue to cover debt or future government expenditure or so the story goes.

Yet again, despite the incredible sums already spent there is apparently a limit to governments financing themselves through the ‘printing presses’ without compromising the ability of the central bank to keep inflation at an acceptable level. It denies yet again the monetary realities of the currency issuer and fixates instead on the wrong solution. Taxation. Whichever path the Chancellor takes going forward, he could cut short any economic recovery at all. Taking money out of the economy can only contribute to further pain at a time when the government needs to be spending more, not just to mitigate the economic effects of the pandemic but also address the future challenges looming in front of us.

If we want to redistribute wealth and remove the power such wealth commands, yes to increasing taxation. But believing it could get the government out of a sticky debt wicket or give it fiscal space to spend is to misunderstand the role of tax which, at base, is not to fund government spending. The real challenges the government faces are not budgetary, but of managing real resources to bring about change.

With this household budget understanding, the only solution might be to envisage yet more cuts to public sector spending which would add to the already underfunded and overburdened public and social infrastructure which the evidence of the last year has shown it to be unfit for purpose despite the brave and staunch efforts of public employees.

Furthermore, there is no ‘fiery pit of economic disaster’ if the UK does not get its financial house into order as was suggested by a senior analyst at the AJ Bell Investment Consultancy in a right-wing newspaper this week. The fiery pit is more related to the planetary disaster that faces us all if governments around the world fail to cooperate and spend sufficiently to bring about that just, equitable and inclusive transition we so desperately need.

 

 

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Build Back Better? Better for whom?

Lego workers standing in rowsPhoto by Markus Spiske on Unsplash

“The rich run a global system that allows them to accumulate capital and pay the lowest possible price for labour. The freedom that results applies only to them. The many simply have to work harder, in conditions that grow ever more insecure, to enrich the few. Democratic politics, which purports to enrich the many, is actually in the pocket of those bankers, media barons and other moguls who run and own everything.”


― 
Charles Moore

 

We’ve been down Alice’s rabbit hole in previous blogs, but we seem to be digging ever deeper as we wake every day into a seemingly ever more dystopian world where nothing is as it seems.

On one side of the coin, a world of poverty and inequity in which employment security and good wages are a thing of the past, children go hungry, our public services and infrastructure decay and the planet’s resources are plundered in a race to keep the wheels of capitalism on track, with catastrophic consequences.

And on the other side, a world of ‘sacrifice’ and ‘hard choices’ where politicians, institutions, and the media grind on relentlessly about levels of government borrowing, the evils of public debt and how we can pay it all back; as if sound finance should trump the well-being of human beings and the planet which gives them life.

This week in a speech to the London School of Economics, a bastion of economic orthodoxy, the Governor of the Bank of England, Andrew Bailey, said of the claim that the institution had ‘flouted the rules’ and ‘damaged its independence, by purchasing government debt and lowering the government’s cost of borrowing’, that such arguments ‘were entirely without merit’. He then went on to deny that what it was doing had any links to modern monetary theory.

This was a surprising conclusion to come to in the light of the recently published working paper An Accounting Model of the UK Exchequer’ authored by Andrew Barclay, Richard Tye and GIMMS associate member Neil Wilson. A paper which exposes the myth of the Bank of England’s so-called ‘independence’ and illustrates the central driving role of HM Treasury in the UK. It also uncovers the lie, perpetuated by the reigning economic orthodoxy, which professes that the government funds its spending as if it were like a business or a household.

Quite simply, the claim that the government has been forced to borrow vast sums to finance its response to the pandemic, which will have to be paid back in one way or another either through increased taxes or more austerity, does not stack up in the light of the evidence. The paper challenges the economic dogmas which have dictated government spending and policy for decades and sweeps away the myths and legends to reveal the truth about how the government really spends. As the authors so rightly note:

‘Even if you previously believed it was firmly attached, the global pandemic of 2020 has caused the mask of ‘fiscal responsibility’ to slip away completely. Politicians that were previously preaching hair shirts of austerity have been able to find billions of pounds, dollars and euros from somewhere to prop up their economies while the inflation that we were told would run rampant if we were ever to undertake such an action has been noticeable by its absence.’

Last year, in the first week of February before the pandemic really took hold, the headline in the Financial Times was ‘Sajid Javid’s surplus goal at risk as UK finances face £12bn black hole’. The FT takes its responsibility seriously – that of keeping an ignorant population frightened and compliant.

The BBC took a similar tack last November, noting that the UK government had ‘borrowed’ £214.9bn to stave off the worst effects of the economic crisis facing the country because of Covid-19. It asserted that with higher spending and less tax revenue, the government had only one option, which was to borrow. It stated that even if the pandemic comes to an end quickly, there would still be higher costs and lower tax receipts in the future. This, it suggested, would again mean even more borrowing, which would have to be paid for either by spending less, or raising taxes or a mixture of both. This all reinforces the scare story that it could represent a huge burden for future generations.

This hokum pokum, which forms part of a wider economic orthodoxy, has had destructive ramifications for economies and societies around the world, and has been allowed to dictate public policy for decades. Mrs Thatcher’s dictum ‘There is no such thing as public money There is only taxpayers’ money,has formed the modus operandi for successive governments. Either to justify policy in cutting back our public services, or to involve the private sector to deliver them for a profit motive, on the basis both of their unaffordability and the proposition that the private sector is more efficient than the public; i.e. better value for taxpayers’ money.

The consequences of such narratives, particularly in the light of increased private sector involvement in the delivery of government policy with little transparency and accountability, are plain for all to see, whether we are talking about the NHS, social care, education, or our beleaguered social security system, not to mention many other publicly delivered services.

We have paid a terrible price for the idea that the national debt has to be paid back, and that government spending is limited in the same way as a household, which pervades the public understanding of how governments spend. The idea of a ‘black hole’ in the public finances is a powerful one, and yet the reality is that the deficit represents public money created and spent into the economy by the government, not a burden related to borrowing.

In fact, the deficit is nothing to worry about – it is nothing less than the private, non -government sector’s surplus, or quite simply the money in your pocket or your savings!

The government is the creator of the pound, does not need a source of income to spend and can never run out of £Sterling. To treat the country’s economy like a business or household is fraudulent economic illiteracy. But of course, it serves a purpose. That is to keep people in servitude to an exploitative system through an idea that someone, somewhere, will have to pay eventually for all this vast amount of government spending. The truth is that the government has the capacity to spend in the public interest and promote full employment as a policy objective, and both will prove of huge importance in the coming months.

Furthermore, if Rishi Sunak were to propose higher taxes, as has been mooted by the economic media pundits as a future possibility, the effect on an economy already in trouble would be to worsen the situation. Taxing people more does not mean that a government is collecting money to enable it to spend or pay back debt; it is quite simply removing money out of circulation. Anyone with an ounce of common sense would understand the implications of increasing taxes at a time when unemployment is rising in an already ideologically driven low wage economy, and where companies such as British Gas, sensing an opportunity, are aiming to renegotiate pay through a firing and rehiring strategy.

Of course, now the Chancellor finds himself in a dilemma as the economic consequences of the pandemic and 10 years of public policy continue to roll out. After all the handwringing about reducing the deficit and debt, he’s having to have a rethink. Or is that a flip flop? It’s the government trademark.

The fact that the government has already shown the power of the public purse to whistle up money to pour into the pockets of big corporations and those of their friends, means the people are becoming increasingly suspicious when they are told hard decisions may be ahead. A dilemma to a Chancellor preaching such hard decisions in the form of higher taxes or further cuts to the already besieged public sector. It will surely prove somewhat of a cleft stick as a direct result of the Tory preoccupation with sound finances; that of balanced budgets, saving for rainy days or paying back debt. His budget review next month promises to be interesting.

On the one hand, he wants to be seen as a safe pair of hands for the public finances (so he can continue to beat Labour over the head as profligate) and his language reflects that, but on the other, there is that little issue of an economy struggling with the human and economic cost of the pandemic. Even if we can return to some sort of normality in the coming months, it will be many more months, potentially years, before economies will return to normal, as the global financial crash in 2008/9 has already proved.

Factor into that picture, along with the already dire consequence of unnecessary cuts to public spending that occurred in the ten years before the pandemic, the need for massive government intervention (globally not just nationally) to ensure a just and equitable transition, as climate change forces the hand for real change. The idea of sound finance should surely be the last thing on Rishi Sunak’s mind. In fact, such ideas deserve to be emptied into the dustbin of history where they belong, regardless of whose political ideology one espouses. The real constraints to future spending will be those of real resources, not monetary ones, and that is the real challenge to be managed in the public interest.

Contrary to what we are currently experiencing, the government should have a duty as an elected body to provide leadership through its spending policies and legislation to address not just the pandemic fall-out, but also provide the framework for a just transition towards a sustainable future. Our future will depend on that intervention, not the increased influence of big business whose motivations are profit-led.

It should be of concern that, despite a landmark review commissioned by the Treasury which suggested that prosperity was coming at ‘devastating cost’ to the ecosystems that provide humanity with food, water and clean air and that radical global changes were needed to production, consumption, finance, and education, Boris Johnson has supported the opening of a coal mine in Cumbria.

This is the usual forked tongue we have come to expect from the PM, who is no doubt going to revel in presenting his government as committed to change at this year’s COP21 to be held in Glasgow in November. It will no doubt also prove an opportunity for more hot air from him and his government, who will be seeking to promote growth through the grossly misleading proposal of ‘Build Back Better’ which has become the mantra for change in many quarters.

We might think building back better has merit, given our current challenges, and it certainly is being presented as such. But the key question is what does it really mean? Who might be its beneficiaries?

In this respect, an article published this week about the care of vulnerable children in privately run children’s homes makes clear what is at stake.

It was claimed in the Guardian article that an oversight scheme was needed to help catch providers before they fail and ensure company changes don’t risk the quality of provision. From the perspective of child-care alone, we don’t need an oversight scheme; we need children’s homes to be restored to publicly funded and provided provision. The care of vulnerable children should not involve private companies for profit, overseen or not, any more than feeding vulnerable children should.

It is extraordinary to learn also, this week, that the DfE (Department for Education) seems totally unconcerned about the suspected huge profits (commercial confidentiality prevents the total from being made public) made by a private contractor at the heart of the free school meals debacle. It highlights the stink at the heart of government which has become a cash cow for private profit with few strings attached.

Let’s then extend this argument by turn to include all the vital public and social infrastructure which underpins a healthy economy (meaning people), which should be publicly paid for and delivered, not funnelled into private provision. And yet, over decades we have witnessed the ever-expanding tentacles of the private sector, where much of that infrastructure, both national and local, has been outsourced or privatised and proved a profitable exercise for private corporations. Huge outflows of public money going one way into private profit with no accountability.

This is not a time to reinforce the narratives of monetary scarcity, whether dovish or hawkish, or to continue the on-going shift of public services such as the NHS or education into private control, where profit is the only consideration. We neither need mitigation for a rotten system, nor to turn over the role of government to an unelected oligarchy of private interests with the supine agreement of elected officials claiming their commitment to democracy, but who will no doubt benefit through the revolving door. Corporations do not exist to further human well-being, they exist to ensure their own well-being; these days in the form of greenwashed growth and profits. Outsourcing ‘building back better’ is not likely to deliver the sort of public interest benefits we desperately need, if that is the direction we are headed in.

This knowledge should be the starting point for a public conversation about the sort of future we want. Is it to be one of excessive consumption, driven by market ideology and greed-driven global corporations? Corporations whose wealth has purchased political influence and enabled their interests to be served, whilst creating huge poverty and inequity and at the same time threatening planetary health? Or should we focus on deciding how we want the Earth’s real and finite resources to be distributed sustainably, via democratically decided state intervention which gives weight to serving the interests of people rather than profit?

Our survival depends upon the choice we make. The curtain has been ripped open to reveal the lies that have sustained this rotten system. There can be no excuses for not challenging it. It is a call to action.

 

 

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Equity via democracy, not philanthropy

Woman volunteer wearing mask and holding box of food in front of a vanPhoto by RODNAE Productions from Pexels

“Do you truly believe that life is fair, Senor de la Vega?
-No, maestro, but I plan to do everything in my power to make it so.”
― Isabel Allende, Zorro

There seems to be some disagreement in Tory circles. As some Tory backbenchers push for further public spending increases to boost the economy in the aftermath of the pandemic, the newly appointed Business Secretary Kwasi Kwarteng signalled this week that a squeeze on public spending and possible tax rises are in the offing to deal with the deficit and debt which have risen as a result of Covid-19. The rises in the deficit and debt have, according to a report in the Telegraph, been fuelled by ‘handouts’, appearing to suggest they were charitably inspired rather than a vital function of the government during difficult or indeed more normal economic times.

As an appropriate aside at this point, our Lens readers will already know that the debt is not a problem in itself. That it is not money owed in conventional terms and can, as the government is the currency issuer, always be ‘paid back’, and that the real judgement of a government’s record is not its financial prudence but its economic record.

To return to the story, Kwarteng then went on to suggest that Britain could not ‘spend its way to prosperity’, insisting in the interview that the private sector was the way to ‘boost the economy’. He then went on to claim that without a prosperous private sector the country would not be able to afford public services, saying that they ‘rely on a thriving, dynamic open economy’. Suggesting yet again that the rich, by their industry, are the wealth makers and that as such they are needed to keep tax revenues flowing into the government coffers.

Same old arguments. Same old bilge.

It is encouraging to see some disagreement in political circles, even if it is still couched in deficit dove terms of ‘spend now to support the economy and pay back later as the economic outlook improves and tax revenues rise.’ But it seems that we are doomed, not just to continue along the ‘free market’ ideological road which has promised much but delivered only increasing poverty and inequality, but also to frame that agenda in household budget terms of affordability.

We have been here before, and as has been pointed out in many MMT Lens blogs, the consequences have been laid bare in the Covid-19 pandemic. And yet despite the evidence, the government is still caught in the glare of ‘free-market’ ideology; still embracing the now-discredited notion that our wealth is created by private investment which then trickles down. And, whilst it has rediscovered the power of the public purse to serve the immediate and vital purpose of stopping the economy from collapsing along with the lives of those affected, it seems that it might be a short-lived affair as the neoliberal project motors on.

The libertarian project of ‘free markets’ is often portrayed as being one of small government and minimal intervention both in the public and private sector. However, the reality has been about increasing the dominance of big business, with a growing alliance between government and corporations with no democratic accountability, which allows public money to flow one way into the pockets of those corporations as a profit generator.

Alleged unaffordability has been used to promote a hitherto, but less so today, covert agenda to push the toxic ideology which serves as the common thread of economic policy and spending. The dominance of misnamed ‘free markets’ and of corporate control. That project has gone into overdrive during the course of addressing Covid-19.

The pandemic has indeed demonstrated the power of the state, but not in the interests of serving public purpose. The public is being encouraged to accept, once again, the idea that government is limited in its ability to manage the economy and that there are financial caveats. And yet as Andres Bernal made it clear recently, commenting on social media:

‘The free market is an incoherent concept in any empirical sense or accurate description of markets throughout history. But the metaphor is part of an ideological project to analogically shape the boundaries and meaning of social worth and participation. It’s meant to make conventional assumptions about firms, markets, money, and economies at large appear as natural as opposed to politically designed by law and policy’.

While politicians favouring an end to lockdown bang on about protecting the economy, they forget that the economy is the people, the public and social infrastructure and institutions, and the governments which provide the vital legal and legislative frameworks for business to exist and for people to prosper (or not as the case may be).

The economy does not exist in a bubble as a natural entity directing the orchestra. Quite simply it is us. And without the people, there is nothing. The economy forms part of an integral whole, as an editorial in the Guardian this week pointed out with reference to lockdown, but applying in real terms to a much wider context:

Underlying every tactical blunder is a vast strategic error – the belief that economic recovery and social restriction are in conflict; that public health measures deplete national wealth.

The neoliberal project, which goes back more than forty years, has determined the road we have travelled on – one of planetary destruction and human exploitation to feed the market beast. That, combined with 10 years of Tory public sector austerity which has led to the decimation of our health and social care sector and public health infrastructure, has brought us not just to national crossroads, but a planetary one too. On the basis of the lie of monetary scarcity.

In recent months and weeks, articles in the media have focused on the consequences of our failing public and social infrastructure and commented on the huge rises in poverty and inequality bringing hunger and homelessness in one of the richest countries in the world. The beast, as yet though, largely remains unnamed and the media uncritical of it.

This was emphasised this week in a blog by Bill Mitchell. In it, he refers to an article authored by Richard Horton and published last year in the medical journal The Lancet in which Horton notes:

‘The economic crisis that is advancing towards us will not be solved by a drug or a vaccine. Nothing less than national revival is needed. Approaching COVID-19 as a syndemic will invite a larger vision, one encompassing education, employment, housing, food, and environment. Viewing COVID-19 only as a pandemic excludes such a broader but necessary prospectus. […] Unless governments devise policies and programmes to reverse profound disparities, our societies will never be truly COVID-19 secure.’

However, right as Horton is about the need for a national revival, Professor Mitchell takes issue on one point and highlights that:

‘the problem is that the economic crisis is not ahead of us […] but has been building for decades. […] Even before the pandemic the signs of the crisis were there for all to see … It took some decades of relentless retrenchment of welfare support, privatisations, outsourcing, elevated levels of unemployment, the rise of unemployment, the suppression of wages growth, the cuts to essential services, user pays and all the rest of the agenda to create societies that not only distribute national income disproportionately to the top-end-of town but have become increasingly fragile to economic disasters’.

Neoliberalism is its name. And its consequences have been destructive. Over the last year, GIMMS has increasingly noted in its MMT Lens the deliberate promotion and growth of the charitable or voluntary sector to step in and fill the gap left by a negligent government. A government which, in reality, has failed in its primary purpose; to serve its citizens through a targeted programme of spending and legislation. David Cameron’s big society has become a reality, even as we begin to appreciate the irony of charities beginning to struggle as their public donations dry up and government grants are reduced.

You can’t run public provision on political rhetoric and hot air, or dependency on charitable donations.

This was demonstrated only too clearly this week with two events. Firstly, the presenters on a local radio station encouraged their listeners to donate to an appeal aiming to provide equipment for home schooling and secondly, an email was sent by the National Education Union to its members and supporters urging them to donate to its ‘Help a Child to Learn’ appeal. Whilst these are vital at this difficult time and recognise a fundamental need, it is symptomatic of a government which has not only not delivered but also been in pursuit of quite a different vision for the future.

No child should be locked out of education for lack of access to computers or other vital equipment to aid home learning during this pandemic. But although there is a clear need to redress the balance because the government is currently not doing so either deliberately or otherwise, unions and other institutions should be clear whilst they promote such direct appeals for help that these must be stopgap measures only. But they are potentially turning into permanent solutions that do not address the root causes of these failures, which are about the dominance of a toxic economic ideology and the failure of the government to spend adequately to ensure the nation’s needs are met within the context of available resources.

The government failed to deliver such support adequately in the last lockdown and still many families without computer access are struggling to meet home schooling needs almost a year on. A two-tier educational system existed prior to the pandemic but has been worsened by it as a direct and continuing result of lack of political will to address it.

The government had the monetary capacity to meet this need and did not, even though more recently it has been committing to redress that failure by promises of increased spending on education. But the root cause of these failures had nothing to do with lack of public money in the austerity years, even though it is presented as such. This root was a direct result of lack of political will to address the origins of poverty and inequality which has crushed people’s lives, created hardship and an inability for those people to build a better life for themselves.

Whilst politicians, from their ivory towers, prattle on about self-reliance, they haven’t the intellect to understand that such self-reliance is dependent on having the public and social infrastructure in place along with government policies and legislation to give people the opportunities they need, whether we are talking about good, well paid, useful employment through the implementation of a job guarantee to restore the balance of power towards working people, or the public infrastructure which underpins society.

These opportunities don’t happen by themselves in the ‘deregulated’ free for all, profit-oriented environment which has dominated for decades and which was supposed to have brought so many benefits but has brought privation and impoverishment instead.

Looking to future generations (today’s children), rather than concentrating on the false images of huge debt burdens in the form of higher taxes if we don’t practise sound financial management of the public finances today, politicians should be focusing on their role as facilitators of a better future. Recognising the role of government through its currency-issuing powers to spend sufficiently to ensure our children have a good education would benefit society as a whole, the economy of which they are a part and in turn enrich their own personal lives in the longer term. And let’s not forget the role of government in promoting full employment as a policy goal, developing fairer employment policies which include decent wages, secure employment and good terms and conditions. All these things are interconnected and lead to healthier and more balanced lives.

This is true both on national and international levels given the challenges we face, but to reiterate yet again reflecting the words of the journalist Larry Elliot who wrote in an article this week, ‘it all comes down to political will’. He noted too that ‘all ships have to move together’, meaning our response to the challenges we face must be global. The challenges are not just due to Covid-19, but also include addressing climate change and rising inequity in real wealth and access to resources; all of which will need global cooperation.

However, it was also depressing to note that in the same breath, as with many media commentators and institutions in recent months and weeks particularly left-wing ones, he suggests ‘closing tax havens and making sure billionaires pay their fair share of tax’ as if by doing so governments will suddenly have extra funding to manage the domestic and global challenges we face.

By continuing to suggest that we depend on the wealthy for our health and well-being, we are denying the capacity of governments. Governments which not only have the power to legislate to create a fairer playing field but also issue their own currency to address those key challenges by dint of that power vested in them by the people democratically.

Ceding that power to the wealthy is a rather scary prospect, even if it is couched in the language of fairness and equity. Particularly when we know that that tax is not needed by the government to create that fairer society about which Elliott writes.

A newly launched project called ‘The Giving Pledge’ under the guise of a declared ‘commitment to philanthropy’ by which some of the wealthiest individuals aim to dedicate the majority of their wealth to giving back is a case in point. A claim by one of its supporters that ‘structured philanthropy is needed to address some of humanity’s most critical challenges beyond the responsibilities of governments and public funds’ should be a cause for concern.

Human and planetary well-being should not be at the whim of the excessively rich who already have too much power, wealth and influence as well as an unfair share of real resources. All of which have been accrued as a result of governments around the world who have presided over that inequity through taxation and other policies and courted such influential people through the corridors of power.

It makes a mockery of democracy and it makes a mockery of the real capacity of governments, both monetarily and legislatively, to create a fairer world and address the very real tsunami of climate change whose shadow is bearing down over humanity.

We don’t have to rely on the distributed largesse of the wealthy to enact change; we just have to have governments that are willing to act in the best interests of humanity instead of a small section of it.

 

 

Past Event

Phil Armstrong in Conversation with Pavlina Tcherneva

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong spoke to Pavlina Tcherneva, program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute.

Audio via the MMT Podcast here

A video of the event will be available soon via our YouTube channel

 

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Happy 25th birthday, Modern Money Theory!

A guest post by Dirk Ehnts, originally published in German here

 

Warren Mosler with 2 Porche carsOn Monday, January 29, 1996, Warren B. Mosler, Director of Economic Analysis at III Finance, wrote a message on a message board in which he asks academics for references and help regarding his model. The model was spelled out in his text “Soft Currency Economics” (SCE), which Warren Mosler worked on in the early 1990s. The following collaboration of Warren Mosler with academics like Randall Wray, Bill Mitchell and many others led to the (further) development of an empirical theory of money now know as Modern Money Theory. In this article, I quote some juicy passages from SCE to highlight the early foundations of MMT.

Warren starts his text by stating that current policy would be a disaster:

When a member of Congress reviews a list of legislative proposals, he currently determines affordability based on how much revenue the federal government wishes to raise, either through taxes or spending cuts.  Money is considered an economic resource. Budget deficits and the federal debt have been the focal point of fiscal policy, not real economic costs and benefits. The view of federal spending as reckless, disastrous and irresponsible, simply because it increases the deficit, prevails.

 

He outlines why he wrote this text:

The purpose of this work is to clearly demonstrate, through pure force of logic, that much of the public debate on many of today’s economic issues is invalid, often going so far as to confuse costs with benefits. This is not an effort to change the financial system.  It is an effort to provide insight into the fiat monetary system, a very effective system that is currently in place.

 

Then, Warren Mosler focuses on these seven points, which I will comment on briefly:

  1. Monetary policy sets the price of money, which only indirectly determines the quantity. It will be shown that the overnight interest rate is the primary tool of monetary policy. The Federal Reserve sets the overnight interest rate, the price of money, by adding and draining reserves. Government spending, taxation, and borrowing can also add and drain reserves from the banking system and, therefore, are part of that process.

This makes clear from the very first sentence that Warren’s ideas (which went into MMT) are not based on monetarist ideas. The central bank controls the price of money (interest rates at different maturities), not directly the quantity, as the monetarists claimed. The other big innovation contained in this paragraph is the view that fiscal operations (government spending, taxation, and borrowing) are monetary operations because the “can also add and drain reserves from the banking system”. Remember that almost all macroeconomics textbooks divide economic policy into fiscal and monetary policy. The line between the two is artificial, Warren says. This perfectly fits reality where central banks are not only the bank (or clearing house) of the banks, but also the bank of the federal government. The Fed describes itself as “Fiscal Agents and Depositories of the United States”.

  1. The money multiplier concept is backwards. Changes in the money supply cause changes in bank reserves and the monetary base, not vice versa.

Again, Warren puts SCE in opposition to monetarism. Whereas monetarism says that central banks lend reserves to banks which these then lend on to the private sector, SCE says that changes in the money supply (including deposits created by bank loans to households and firms) cause changes in bank reserves and the monetary base.

  1. Debt monetization cannot and does not take place.

This is very important: there is no such thing as “debt monetization”. The reason is the following. If the central bank sets an interest rate target, its purchases of Treasury securities are not discretionary any more. If the interbank rate goes down, the central bank has to sell Treasury securities in order to mop up “excess” liquidity and thus stabilize the interbank market interest rate. If the interbank market rate goes up, the Fed does buy Treasury securities, but only to maintain its interest rate target. As Warren explains later in the text: “The Fed is unable to monetize the federal debt by purchasing government securities at will because to do so would cause the funds rate to fall to zero.” Today, with the Fed Funds Current Target Rate set at 0.00-0.25 the Fed can buy all the Treasury securities it wants because the funds rate is supposed to be at zero or above. That has nothing to do with “debt monetization” and everything with bringing the interest rate down.

  1. The imperative behind federal borrowing is to drain excess reserves from the banking system, to support the overnight interest rate. It is not to fund untaxed spending. Untaxed government spending (deficit spending), as a matter of course, creates an equal amount of excess reserves in the banking system. Government borrowing is a reserve drain, which functions to support the fed funds rate mandated by the Federal Reserve Board of Governors.

So, government does not borrow to “finance” itself. It sells Treasury securities to “drain excess reserves from the banking system.” Borrowing does not “fund untaxed spending”. These are essential insights of MMT. Even today, many academics and commentators seem to believe that there are different ways a government can “finance” itself. That is not true. Government does not and cannot finance its spending.

  1. The federal debt is actually an interest rate maintenance account (IRMA).

By the way: Treasury notes only exist electronically, according to Treasury Direct. It is all just digital numbers in accounts at the Fed, owned by the Treasury. On January 21, 2021, the Fed holds $4,732,690 million worth of US Treasury securities. If it would be forced to sell them into the market, bond prices would collapse and yields shoot upwards. If it would buy up all federal debt (all Treasury securities), the interest rate would be zero permanently.

  1. Fiscal policy determines the amount of new money directly created by the federal government. Briefly, deficit spending is the direct creation of new money.  When the federal government spends and then borrows, a deposit in the form of a treasury security is created. The national debt is essentially equal to all of the new money directly created by fiscal policy.

The last sentence is worth repeating: “The national debt is essentially equal to all of the new money directly created by fiscal policy.” When government spends more than it taxes, it creates new (additional) money. That’s all there is to it. The implication is that if you want to reduce the national debt, you have to destroy money by fiscal policy. This only happens when tax revenues are higher than government spending. Since this reduces private wealth, it will collapse aggregate demand eventually. The Clinton surpluses and the collapse of the dot-com boom are a case in point.

  1. The amount and nature of federal spending, as well as the structure of the tax code and interest rate maintenance (borrowing), have major economic ramifications. Options over spending, taxation, and borrowing, however, are not limited by the process itself but by the desirability of the economic outcomes.  The decision of how much money to borrow and how much to tax can be based on the economic effect of varying the mix, and need not focus solely on the mix itself (such as balancing the budget).

Warren discards the idea that the mix of tax revenues and borrowing (issuing Treasury securities) should be driven by “balance the budget”. Instead, the “desirability of the economic outcomes” should be the guide to fiscal policy. This is Warren’s version of Lerner’s Functional Finance.

Summing up, the ideas contained in Warren Mosler’s SCE at the beginning of the 1990s already contained a lot of ideas that by now are accepted by large numbers of academics, policy-makers, bankers, journalists and the wider public. Expanding these ideas into MMT added more flesh and led to the formation of a proper macroeconomic school. At 25 years of age, MMT is now at the verge of becoming mainstream macroeconomic theory. This is well worth celebrating!

 

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