Breaking free from false economic narratives

Dear Dominic

One all night sesh we had playing Monopoly in college and the banker ran out of money. We just wrote out more notes and it worked fine. Should I tell Rish?

Financibus ad infinitium

Boris

Posted on Facebook by the author Michael Rosen

Anyone watching the media coverage before and after the Chancellor’s Spending Review could be forgiven for thinking that the UK was going to sink like the Titanic under the burden of unsustainable borrowing and debt unless the government took the necessary step to control its spending. The party of fiscal sustainability which has been reworked over these last few months to keep the economy afloat is now rowing back and an army of fiscal hawks and deficit doves are now back to playing the household budget game of the public finances.

After 10 years of punishing austerity and cuts to public sector spending, which have already done huge damage, Rishi Sunak told the BBC he would have to make tough choices on public pay.

Torsten Bell from the Resolution Foundation claimed that the COVID-19 crisis is causing immense damage to the public finances and tax rises will be needed to cover the extra spending.

Laura Kuenssberg, the political editor of the BBC, talked about the ‘eye-wateringly enormous levels of public borrowing’ as a result of the ‘massive gap between what the government takes in tax and what it has been spending’. Recalling David Cameron’s false claim in 2010 that the economy was nearly bankrupt, she suggested that the government’s credit card was ‘absolutely maxed out’ and ‘there was no money left’.

Daniela Gabor, an economist from the University of West England, whilst on the one hand accepting that the household budget narrative of the public finances was flawed, she like many others reinforced it by saying that ‘interest rates on public debt were at historical lows’ and that government, rather than making cuts ‘should be using the opportunity to borrow more in order to finance the country’s recovery’.

Tom Kibasi, a former director of the Institute for Public Policy Research (IPPR) thought that whilst we need structurally higher government spending that would, in turn, mean permanently higher taxes.

A former Treasury Minister described it as a ‘multigenerational debt which will have implications for the rest of our lives in terms of what the British state can afford’.

And the Shadow Chancellor Annaliese Dodds topped the titanic effort to mislead the public by saying ‘Britain must rebuild its economy after the Covid-19 pandemic with one eye on rising deficit and debt levels.’

STOP!

From politicians on both sides of the political spectrum, institutions and think tanks such as the IFS and the Resolution Foundation, and economists stuck in orthodoxy from fiscal hawks to deficit doves, all are choosing to be ignorant of how governments spend and all promote the same economic illiteracy. It seems that the Establishment is on a mission – to ensure that the public doesn’t get the wrong idea about the spending capacity of the UK government to address the fallout from the Covid-19 pandemic and to ensure that the lie of austerity is not uncovered and that cuts to public spending imposed from 2010 were driven, not by fiscal necessity, but by economic ideology.

The political and media tale of the vast amounts being ‘borrowed’ is a cynical reinforcement of a false narrative that is setting up people for the expectation that there is always a price to pay in cuts, pay freezes or ultimately higher taxation.  Like many Chancellors before him, Rishi Sunak is hiding behind the smoke and mirrors of public accounting which does not reflect the monetary reality of how a government which issues its own currency actually spends.

The most telling aspect of this narrative, which should instruct our views, is that the government has had no trouble finding the money to pour into the private sector and will continue to do so, as announced in Sunak’s infrastructure plan outlined in his Comprehensive Spending Review. This projects more than £100bn worth of capital spending next year on building projects for schools, hospitals, housing, transport and green projects. Whilst public money flowing into private profit in itself is not an issue unless we are talking about public services which should always be publicly funded and delivered, it will quite simply mean more contracts flowing to the private sector without parliamentary oversight and public accountability.

At the same time, Rishi Sunak plans to cap public sector pay, reduce the planned increases to the national living wage (from 49p to 19p per hour), cut the amount of money available for low-wage tenants through housing benefit and he has left Universal Credit claimants in a state of uncertainty as to a continuation of the current UC uplift in April.

After 10 years already of public sector pay freezes, imposing more will further reduce standards of living for public sector workers who have already suffered enough. As life becomes tougher and incomes even more stretched, less money will flow into our local and national economies – not exactly helpful at a time when the government should be ensuring sufficient spending to keep the economic wheels rolling.

As so many are already on low wages or in precarious employment, this will quite simply drive people into even more poverty. And worse, is it right to further deprive people of an income which allows them to support themselves and their families without a daily struggle to make ends meet?

Would it not be better, through adequate welfare and employment policies, to ensure that people did not fall into poverty in the first place, and not just in times of economic crisis? This is the moment for serious consideration of a Job Guarantee to get us through these dark days and beyond. Useful public work paid for centrally and organised locally at a living wage to keep money flowing through the economy.

After the last few months, we have seen the very real value of public sector work, and indeed those key workers, often on low wages, who have kept the economy functioning. They are the linchpins of a healthy economy and society. Government ministers clapped for them and now they want to throw them under a bus. The government, which is the price setter for labour and thus determines both the wages of those in the public and private sector through wage and employment policies, is playing a cynical but not unsurprising game of divide and rule to keep working people subordinate to the needs of corporations. Businesses which profit from policies designed to keep wages down and profits up, as the share of productivity continues to be shifted into ever fewer hands, causing more misery along the way. The expected huge rise in unemployment will indeed play right into their hands although, of course, that will eventually come full circle as people on low wages spend less into the economy.

These last few years, months and weeks, we have seen things that no civilised country should see, and not just in the UK. The huge growth in the use of food banks (covered in previous blogs) which predates the pandemic reflects government policies – people from all sections of society are now being driven to queue for food. Their stories should shame our politicians.

Dame Louise Casey, a former homelessness Czar and advisor to 5 previous Prime Ministers, was clear ‘This is the UK in 2020 we should be able to do a better job of looking after the destitute and the hungry … and no it is not ok to leave that to charity… Unless something is done, a food emergency will follow the economic emergency’.

Earlier this year, the Work and Pensions Secretary Therese Coffey described food banks as the ‘perfect way’ to help the poor, as if somehow the government had had no hand in their poverty. Which of course is the neoliberal way – blaming poor people for their situation. However, it cannot be emphasised enough that it is the government which has had a hand in their poverty. Not just this government, but successive governments who have idolised the god of the market and bow to its dictates.

The decline of our public and social infrastructure, from the NHS, social care and mental health provision, not to mention other vital public services and the social security safety net, is not an unforeseeable tragedy borne of events outside government control which necessitates hard financial choices. It has been a deliberate act of neglect, which looks to continue.

The former Liberal Democrat MP and care minister, Norman Lamb, whose voting record showed he generally voted for reductions in welfare benefits, bewailed this week the neglect of social care and mental health services. In the same breath, he suggested that the state of the public finances should be a cause of concern, implying that there was a lack of money to address the worsening state of our essential services. There is no lack of money. What we lack is a political will to act. The political will to serve the nation’s interests and those of some of the poorest and most vulnerable in our society.

In this respect, and over decades, we have been witnessing the decline of State responsibility as philanthropy (with its shades of Victorian ‘do-gooding’ and social control), charity and volunteering have slowly been taking its place as a mechanism to deliver public goods. It is serving to substitute public spending, which is increasingly being withdrawn by the state on the premise of unaffordability whilst at the same time maintaining those public services that the private sector can run for profit and receive public money to do so.

As evidence of this drift, this week Andy Haldane, the Chief Economist and founder of Pro-Bono Economics, said that civil society had been one of the unsung heroes of the pandemic crisis and that the social sector had been ‘operating as our institutional immune system’ supporting those most in need. It was heartening, he said, that civil society and charities have plainly risen to these challenges, helped by a surge in volunteering activity’. He then went on to note that the charity sector was in a fragile state financially with a funding gap for this year of around £10bn and this hit to income was expected to persist for the majority of charities.

‘An institutional immune system’? This gets to the nub of the issue. The idea that charities and volunteering can or should be a substitute for proper government-funded intervention and not just in times of crisis. The Big Society is now playing out big time. And whilst we should not criticise the goodwill of those people who give their time and energy to good causes, one might argue that the need for charity and volunteering is, in fact, a failure of the state. And as it is becoming very clear, such a model has one big flaw.

Charities, like all organisations, depend on volunteers being available and donations and other forms of raising money to run their activities. In times of crisis like today, they too suffer as businesses suffer, as economic conditions decline, and people have less money in their pockets to spend. These days, they have become little more than businesses, making money and having the same hierarchical business structures of top management with top salaries and volunteer or low paid workers at the bottom. This is not a good or sustainable model for the delivery of public purpose, serving economic and social well-being.

Only the government can step in as the power behind the public purse, and such an acknowledgement offers huge opportunities to create an economy that works for everyone and not just the few. If a job needs doing, then it should be the state that provides the wherewithal, either through a job guarantee to smooth out the cyclical ups and downs of the economy, or through an expanded public sector. The only constraint any government will face is one of real resources and that is the real political challenge. How those resources are shared to create a society that works for all.

The bottom line is that in reality there is no shortage of money; just a shortage of political will which is borne of a toxic ideology that reviles the state delivery of public services, combined with the newly coined word ‘chumocracy’ which serves the interests of the friends of the government and the corporations who can ensure their place through the revolving door.

On Tuesday’, Bill Mitchell hosted a guest blog by Professor Scott Baum, and it deserves to be quoted in this week’s MMT Lens. Whilst referring to Australia, it provides a valuable insight into where we are right now in the UK and what the challenges we face are in turning the ship around, or rather stopping it from sinking like the Titanic with all passengers aboard.

“The fairy-tale of government working for everyone is continuing to result in significant social and economic pain for many individuals, their families and their communities.

 

Why is it that the government says one thing, but then in practice does another?

 

What has led us down this path of accumulated social wreckage?

 

We know that it is not because sovereign currency-issuing governments are fiscally limited in their ability to work for the good of everyone.

 

The government, if they wished, could intervene in a heartbeat to improve the precarious lives currently being lived by so many Australians.

 

We have seen this during the COVID emergency where governments have been quick to step in and provide a wide range of support to a wider range of the population than has been the case in the past.

 

Politicians have been allowed to leave their ideologies (think neo-liberalism) at the door.

 

But what their ideology doesn’t allow them to do is to stray for long. Before too long they have to go back and pick up where they left off.

 

The apparatus of justification that is so entrenched within the neo-liberal ideology means that even when ‘business as usual’ approaches have to be abandoned due to a crisis, it is not long before we turn back to the usual ideas that have led us to where we are today.

 

Throughout the COVID slowdown statements by politicians have been steeped in this kind of ‘return to normal’ thinking.

 

Early on Australian Prime Minister Scott Morrison said

 

The measures are all temporary, targeted and proportionate to the challenge we face. Our actions will ensure we respond to the immediate challenges we face and help Australia bounce back stronger on the other side, without undermining the structural integrity of the Budget.

 

Reading between the lines, yes, we had to do something we were not comfortable doing because the ‘system’ wasn’t working.

 

But we can’t wait to get back to our comfort zone.

 

In short, as a society, we are where we are because of the failures of the neoliberal system, the inability of politicians to see beyond their ideological views and the ability of those who benefit most to continue to legitimate the system.”

Failure to leave our household budget comfort zone can only lead to more poverty, inequality, and environmental decay. As the pandemic has inadvertently set us on a different course, those of us who want to see a fairer redistribution of wealth and resources and a planet which can support future generations sustainably, need to ensure that the road taken is not a Great Reset towards a reinforcement of global corporate power and influence greenwashing its way towards greater control and higher profits.

That’s some challenge, but it’s not insurmountable.

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