“Man cannot discover new oceans unless he has the courage to lose sight of the shore.”
Andre Gide
In the week when protests have erupted in countries around the world from South America to Asia, the Middle East and the UK are we beginning to see a real revolt against the prevailing economic ideology? One which has poisoned politics, allowed corrupt behaviour through the influence of global corporations, caused environmental devastation and totally unnecessary and degrading human suffering.
People may not name neoliberalism as the author of their deprivation, but the ascendency of market-driven ideology has left many living in penury, with its associated effects not just on individuals but on societies across the world. Whilst the few live lives of unimaginable luxury, they do so on the backs of those who have virtually become slaves to a rotten and decaying system. The Chicago Boys who experimented in Chile with such destructive consequences have much to answer for decades down the line, where today the country’s economic model has produced vast wealth but left many struggling to manage as this week’s protests there have shown – a situation that has been replicated on a global scale whilst the few continue to gobble up the world’s wealth and resources for themselves.
Can we dare to hope that in the face of rising discontent that those politicians, economists, institutions and even journalists who have brazenly promoted and given this cruel economic system legs will eventually be called to account? Can we dare to believe that, as the events show in Chile, a million individuals acting collectively can prove a powerful force to be reckoned with?
And yet the UK headlines this week once again make for stark contrasts between those who have lost out and those who have gained through government policy decisions and spending and taxation policies.
Hundreds of people forced to live in caravans added to those eking out a miserable existence living under railway arches, in temporary accommodation or sofa surfing. Two thirds of single parents losing out under the universal credit system adding to those who have already suffered at its hand and fears that it will only add to soaring child poverty rates. Yet more schools opening community food fridges to tackle family hunger caused by in-work poverty and the scourge of low wages adding to the 2000 food banks already providing support across the country. A nurse pleading for help after having ‘nothing left’ after rent, childcare and travel costs and teachers living in sheds or cars and depending on food banks to eat. Amazon warehouse staff exhausted and under pressure to perform, working 10-hour shifts, falling asleep on the toilet and being forced to join what are euphemistically known as ‘power hours’ to speed up productivity.
One of its staff called it modern slavery and another asked why are people being treated like this when Jeff Bezos is the richest man in the world? In the same vein, when the boss of Deliveroo gets a 57% increase in pay and £8.3m in share options whilst those so-called ‘self-employed contractors’ at the firm work without a guaranteed minimum wage, holiday pay or sick pay and Argos staff get their annual Christmas bonus cut to just £5 by a boss on £3.9m it’s a wonder that people have accepted their servitude with so little protest, up until recently that is.
Are the chickens coming home to roost? And where will it lead us? With people crushed by the burden of debt, low wages and precarious employment, a consequence of government policies, many people find themselves hard pushed to protest as keeping heads above the water becomes the overriding priority in life. Combine this with a democratic system which increasingly leaves citizens with no real voice, we shouldn’t be surprised that their fears and insecurities are now cynically being exploited by extreme right-wing politicians.
This is not confined to the UK or even the EU. There seems to be a huge chasm between the lived realities of people’s lives and politicians from across the world. Politicians blind to those realities or unwilling to engage with them, many of whom are still defending austerity as if there were no alternative then and would even cheerfully prescribe more of it now should they consider it necessary. The household budget analogy of the public finances persists and has a lot to answer for!
It begs the question whether, in the face of a global domino effect falling towards world recession as China’s economy slows and the US pursues its trade tariff policies, if the same inherent misunderstandings about how a modern monetary system works persist what the consequences could be? Even in the event of a temporary fiscal stimulus, failure to embrace that real understanding will leave future generations poorer in terms of life expectations on whichever continent they live, not to mention the salutary prospect of the destruction of our species on a planet no longer able to sustain us, all on the untruth that any action would be ultimately monetarily unaffordable.
As David Attenborough said this week ‘all these seven worlds are actually one and we are dependent on it for every mouthful we eat and every breath of air we take’. GIMMS has noted before that it is difficult to imagine anyone believing that money is so scarce that we can’t save ourselves, when the real challenges (which are less spoken about if at all) are the actual real resources that will allow a sustainable and just global transition to take place without exceeding the productive capacity of the planet and its citizens.
This week saw a small glimmer of hope as the TUC published its report ‘Lessons from a decade of failed austerity: Getting it right this time’. It rightly challenges the view pushed by many economists and governments across the world that austerity had been the right response to the Global Financial Crash and traces the economic consequences of such policies on the economies of OECD countries and the impacts on workers’ pay. It also contests the widely-held view that there was no alternative to cuts to public spending and that society ‘must simply learn to live with degraded conditions’ on account of the public and social infrastructure no longer being affordable.
It recognises that although austerity thinking is still prevalent in some quarters, a programme of expansionary fiscal policy will be vital to support aggregate demand to counter the effects of a predicted global recession and reverse the damage caused by almost 10 years of cuts to public spending. It recommends that ‘government should expand expenditure on public sector salaries and services, fast track increases in public infrastructure and use fiscal policy as part of a wider plan to deliver ‘sustainable growth’ including investing in the public services families rely on, the skills workers need for the future and a just transition to net-zero carbon emissions’.
Whilst one might want to know more about what it means by ‘sustainable growth’ in a finite resource world, overall the report is encouraging. Its acknowledgement that ‘austerity thinking is the logic of the household budget and omits the impact of government policy on the economy’ is very welcome. But then it spoils it somewhat by the suggestion that ‘on a macroeconomic view government spending strengthens the economy and can improve rather than damage the public finances’ and then goes on to say that ‘increased expenditure should be financed by borrowing rather than increased taxation.’
As people are hopefully now becoming aware, reference to improving or damaging the public finances fits into the tax or borrow narrative of how governments spend which is incorrect. It is also contradictory to the report’s earlier recognition that the logic of the household budget omits the impact of government policies on the economy. The latter is the only measure of the effectiveness of government spending and taxation policies, in other words, who gained and who lost out as a result, not how a government managed its public finances or whether it balanced the budget or achieved a surplus.
The question of how we pay for it is not answered by taxing the rich or borrowing from them. Indeed, as the economist Scott Fullwiler noted this week ‘it’s time for the left to recognise that raising tax rates on the rich a few % to match spending isn’t the same thing as a comprehensive policy to actually reduce inequality. In fact, taxing the rich to ‘pay for’ spending means you need them to stay absurdly rich.’
Only this week, Jeremy Corbyn in a Q&A session invited successful people ‘to be happy with their wealth, but also to share it a bit by paying their taxes, [….] so that our public services are there for them just as much as they’re there for everybody’
Most certainly one should have no objection to the rich paying their taxes for reasons of equity but the constant references to finding the magic money tree in the Cayman Islands or getting rich people to pay their taxes so that we can have public services smacks of Victorian altruism and gives rich people more significance in relation to how governments spend than relates to reality.
Paying for government programmes is achieved by the recognition of the sovereign currency-issuing powers of the government which can authorise its central bank to spend to deliver its political agenda and that applies whichever side of the political spectrum you are on. Labour will be onto a winner if and when the penny finally drops!
The report goes on to discuss the natural rate of unemployment and the theory of NAIRU which is an economic concept that proposes that there is a trade-off between unemployment and inflation. It suggests that when unemployment falls below a defined threshold, wage inflation then price inflation will be triggered.
In the words of Matthew Klein from the FT who is quoted in the report ‘in addition to being morally odious, the theory is empirically unsupportable’. The post-war full employment policies led by the governments of the day was followed by a complete change of tack which for decades has left working people as collateral damage in the service of employers who have been the sole beneficiaries. Whilst there may have been an increase in employment (notwithstanding the levels of underemployment contained within those figures) this has occurred alongside a decline in wages across advanced economies leading to subsequent declines in living standards. Working people have been the losers.
The report, however, suggests that on the evidence, the natural rate of unemployment must be a ‘moveable feast’ as policymakers have had to reassess the Natural Rate of Employment over time. Whilst it is not mentioned in the report it would seem that the next logical step must surely be towards examining the Job Guarantee as a more humane and macroeconomically sensible programme to create full employment and price stability without the associated societal ills caused by people being abandoned to the immorality of unemployment as a government choice. Enabling public sector work at a living wage which offers the dignity of employment and social inclusion must be an improvement, surely?
Let’s leave the final words to Mervyn King the former Governor of the Bank of England who said this week:
‘Another economic and financial crisis would be devastating to the legitimacy of a democratic market system. By sticking to the [..] orthodoxy of monetary policy and pretending we have made the banking system safe, we are sleepwalking towards that crisis. Following the Great Depression of the 1930s, there had been new thinking and intellectual change. No one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas underpinning economic policy. That needs to change’
Those of us who are working to promote a better understanding of how money works within a Modern Monetary Framework are already doing just that and the conversation is just beginning.