Let’s not let the debt doomsters rule the roost!

Doing so will come at a huge human and planetary cost.

Silhouette of a businessman outside in a thunderstorm holding an umbrella and brielfase with lightning flashing behind him
Image by Gerd Altmann from Pixabay

In this week’s news the train crash economics of neoliberalism continues to thunder on. The government, still ensconced in its ivory tower, continues to avoid taking any responsibility for its actions or policies passing the buck at every turn. And public money we didn’t apparently have for public services these last ten years continues to be poured into the bank accounts of its business friends with no accountability.

As the government’s furlough scheme draws to a close, M&S announced earlier this week that it is to cut 7000 jobs in the next three months and Pizza Express is to close 73 outlets making 1100 people redundant. This will add to the growing number of already unemployed which without continuing government action will set to increase over the next few months.

The actual shape of the labour market has been masked by the Chancellor’s job retention scheme which has kept people off the unemployment register. With vacancies having halved during the second quarter along with the doubling of the claimant count (figures from the ONS July 2020), which already stands at 2.7 million, the future is looking bleak for many in the aftermath of Covid-19. Add to this the reliance of the economy on the service sector, (retail, hospitality and leisure) which employs many workers in precarious, low paid, casualised employment and which has been hardest hit since lockdown.

Unless the government chooses to step in as the employer of last resort with a Job Guarantee or provide local authorities with the funds to hire workers lost to the austerity cuts in the regular public sector, then unemployment is destined to rise.

Covid-19 has laid bare the need for additional teaching staff, healthcare workers and prison staff. In every public service, a case can be made to increase staff numbers, hired into well-paid unionised jobs. With an expanded public sector operating alongside a government-backed Job Guarantee offering employment opportunities for those who need retraining to transition back into regular employment, we could avoid the worst consequences of a damaging recession and provide a stable framework for the future economy.

The government could also, if it chose to, invest significantly more in higher education to ensure that the country has sufficient engineers, nurses and teachers to secure the nation’s own productive capacity rather than stealing those workers from nations facing their own crisis.

The IFS reporting also this week noted that English councils are facing the prospect of having to cut even more services should the government fail to meet the additional costs of their spending on the Covid-19 pandemic. This will add to the pain that has already been experienced as a result of stretched local government budgets following cuts to their funding which has left them increasingly cash poor and having to make difficult decisions on public service provision to balance their budgets. With some already having faced the prospect of bankruptcy, even Tory-run councils, the future of local governments is also looking rocky. It reinforces, as already mentioned, the need for both increased funding and an expansion of local authority services.

In the same week as Matt Hancock, the Secretary for Health and Social Care, announced the abolition of Public Health England (in an exercise in passing the blame to take the heat of the government’s appalling handling of the Covid-19 crisis), Deloitte was awarded a government contract – adding to the already huge number of private companies which have benefited from public money both before and during the pandemic crisis. The myth of private sector efficiency lives on despite the growing evidence that public services would be better provided publicly – whether it’s the NHS, social care, the probation service, local government, or the test and trace programme contracted currently to the discredited private company SERCO.

Since the pandemic began, an estimated 20,000 households have been made legally homeless and 230,000 people face the prospect of eviction unless the government extends its temporary ban which it has renewed until September. Food banks continue to bear the brunt of years of austerity and the Covid-19 fallout with hunger being normalised rather than questioned as to why it is happening. Whilst the richer amongst us can take advantage of a temporary ‘eat out to help out scheme’ thus reinforcing the vast inequalities that exist in this country, it will do nothing to address both the systemic problems caused by the policies of successive governments, 10 years of politically induced austerity and the consequences of Covid-19 on the economy.

While we all clapped for the NHS (including Boris Johnson), nurses have lost out on salary increases and UK families who lost loved ones caring for patients will lose eligibility for welfare benefits if they take the compensation package of a measly £60,000. All at the same time as Dido Harding is appointed head of the new Public Health body to replace Public Health England despite her widely criticised leadership of the SERCO run test and trace programme and Sajid Javid, the former chancellor, takes an extra job as an advisor to JP Morgan on an undisclosed salary. These appointments add to the already long list of revolving door politicians on both the left and right who have joined the ranks of advisors to private industry including healthcare. Jobs for the boys and girls.

While the government sits in its ever-higher ivory towers praising its ‘world-beating actions’ and feathering the nests of corporations, the realities are stark for many. The economic ideology which has driven government policies on both sides of the political spectrum for over five decades is encapsulated in the ongoing redistribution of wealth upwards, privatisation and the dismantlement of our public and social infrastructure. The much-lauded shrinking of state involvement in the public sphere in pursuit of efficiency is a mirage. Instead, we have its marketisation acting as it does as a cash cow for corporations and which has also to their benefit created a distorted, unregulated capitalism with the sole objective of keeping the profits rolling and the power in the hand of a small elite. All at the expense of the health of the economy and its citizens.

And yet despite the fact that the pandemic has increasingly revealed the gaping holes in this pernicious ideology, right on cue politicians, institutions and journalists have begun yet again to reinforce in the public consciousness that there will be a price to pay for this vast (but necessary) fiscal response to the pandemic which should have proved beyond all doubt that the austerity narrative of money scarcity was a con job!

The alarming headlines in the media this week are designed to instil fear as they report that government debt hits £2tn for the first time ever. The Telegraph reported that ‘Britain is about to be sucked into a catastrophic doom loop with no escape hatch’ as government,  the author posits, will have no option but to increase taxes in an economy that is unable to generate enough money to pay for the government’s huge expenditures.

Then comes along the apparently left-wing London Economic, which one might have hoped would have a different emphasis than the size of the national debt, focusing on the amount of the UK’s ‘debt pile’ and the vast ‘borrowing’ figures. Instead of challenging Rishi Sunak who it quotes as saying ‘This crisis has put the public finances under significant strain …. today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions’ it appears to accept the narrative that there will be a future price to pay. Instead of examining what that spending represented in terms of a vital fiscal injection to save the economy – however skewed it was towards the interests of business or examining who were the real beneficiaries of that spending it focuses on the debt pile instead! If it had been a left-wing government response to the pandemic or addressing inequality and climate change how would they have pitched their argument?

Instead of pointing out the harmful consequences of the previous 10 years of austerity on the economy and people’s lives it goes along with the prospect of more cuts to spending in the future without questioning the premise for that possibility.

Even Annaliese Dodds, the Labour Shadow Chancellor, couldn’t get it right earlier this month. Spoiling her statement that continuing financial support for jobs and businesses would be vital until confidence and growth returned, she reinforced the household budget message by talking about putting off measures to rein in the UKs ballooning state debt. She added that whilst interest rates remained low the government’s ‘number one goal’ should be to keep the economy functioning rather than risking growth with ‘fiscal tightening measures’ to reduce the ‘debt mountain.’ Heart in the right place but with the wrong narrative.

Whether it’s reference to debt piles or mountains, borrowing and taxation to fund government spending household budget economics rules whichever side of the political spectrum you are on whether you are a deficit hawk or a deficit dove.

Even on the other side of the pond, as the race for the presidency hots up, only this week a Joe Biden aide Ted Kaufman, echoing Liam Byrne’s note left in the Treasury in 2010, suggested that if the Democrats were to win the ‘pantry is going to be bare’ as a result of the growing deficit and therefore spending options would be limited due to the rising national debt. Not exactly an invitation to put an X on the Democrat voting slip!

It has to be said that Rep. Ocasio-Cortez in raising the alarm by saying ‘We need massive investment in our country, or it will fall apart. To adopt … ‘deficit hawking now, when millions of lives are at stake is utterly irresponsible’ is, without doubt, speaking for us all if we did but know it.

Huge damage has already been done by the previous 50 years of a malignant economic ideology which has been compounded by a household budget economics understanding of the state finances and 10 years of the politics of austerity. To be talking again in terms of reining in expenditure whether in the medium to long term can only make things worse for the lives of citizens. As Stephanie Kelton said in January whilst in Adelaide ‘Government deficits are normal and even necessary to the health of most economies’.

The spectre of borrowingcontinues to haunt the public understanding of how the government funds its deficit as does the prospect of higher taxes to pay back what has been borrowed.

Only this week the BBC published a ‘borrowing’ explainer in the context of Covid-19 saying that such measures will prove expensive because when the government’s income reduces because there are more unemployed it leads to a tax shortfall which it then went on to explain meant that the government would have to borrow on the financial markets by selling bonds to fund the deficit.

But the reality is something quite different. What if we could knock this borrowing and debt spectre right off its perch?

In the minds of a currency user, the BBC’s description sounds like a logical proposition. When you spend beyond your income you may have to finance it by getting into debt by borrowing from a bank or building society or worse loan sharks charging huge interest. However, the state finances do not operate in this way. Whilst from an accounting position it certainly looks as if the government has to borrow, this is just smoke and mirrors designed to keep the household budget mirage going and the focus on fiscal discipline rather than delivering the public purpose within the context of finite real resources.

In short, that is because as the anacronym S(TAB) framework explains – spending precedes taxing and borrowing. Monetary sovereign countries like the UK as currency issuers can always meet their liabilities, provided they are denominated in that currency. As the Stirling Wolf noted in his excellent ‘borrowing’ explainer on how an independent Scotland would actually pay for its spending ‘the government is ultimately the boss’.

If the left-wing finds both the right leaders and the will to deliver a truly progressive agenda, then it will have to accept that shifting the narrative away from household budget language will have to play a role. It cannot as Biden’s Aide suggested fall back on images of the treasury being empty, if and when it comes to power which will, in turn, limit its political agenda. That would be more than foolish, it would be indefensible at a time when the challenges the world faces in terms of rectifying the huge wealth disparities that exist, dealing with the prospect of massive global unemployment as a result of the pandemic and finding solutions to the climate tsunami which is bearing down upon us. It would quite simply reinforce yet again the images of a scarcity of money and the need for fiscal discipline rather than meeting the needs of the economy, citizens and the planet.

It behoves a truly progressive left to challenge the economic shibboleths surrounding money and debt and unpick these destructive narratives. We need a government to take responsibility by recognising the power of the public purse. Otherwise, at some point in time, the ‘how will we pay for it?’ story will rule the day yet again at huge human and planetary cost. And we will rue that day.

 


Event Video

The Post-Covid Economy

What could a Post-Covid Economy look like? GIMMS Associate Philip Armstrong explained at our online event this month

Join our mailing list

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

Support us

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

 

Leave a Reply

Your email address will not be published. Required fields are marked *