“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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