“OK…SO WHERE DOES THE FUNDING COME FROM?”
It depends on what we are talking about. If we are talking about universal health care, a Job Guarantee, infrastructure work, etc., the funding comes from the national government.
If, on the other hand, we are talking about national government spending itself, – as in, “how does the government ‘fund’ its spending?”, the answer is the national government does not “fund” its spending because it is an impossible condition.
The national government alone is the source of funding in terms of its own currency for the private sector and the foreign sector combined. That is what being the monopoly currency issuer is all about: Providing the funds.
The currency-issuing national government is not an intermediary that collects “money” from private entities in the form of taxation or borrowing to fill its empty coffers, and then redistributes those “funds”.
Treasury has no coffers to fill. Rather, treasury fills the coffers of everyone else.
Ellis Winningham
Have we had enough yet? This week Boris Johnson, in a Zoom meeting of the 1922 Committee, warmly saluted the vaccine rollout with these words: ‘The reason we have the vaccine success is because of capitalism, because of greed my friends’. Whilst he has tried to backpedal from these ill-advised remarks, the words reflect a widely held view by politicians, institutions and the excessively rich that the market is the only mechanism for delivering well-being, and that the State should take a step back and let the market do its job, greed and all. We have paid a heavy price for that sort of thinking, in terms of environmental destruction, poverty, inequality, human degradation and exploitation.
The cumulative effect of five decades and more of market-led dogma and a toxic ideology that has been embraced by successive governments, of either political stripe, has given monetary succour to the corporations at the expense of public purpose, which has over the past year been revealed for exactly what it is. Greed for power, greed for profit. Not a very wholesome or edifying advert for capitalism, and one which is increasingly in the public eye, as media attention focuses on who has benefited from government policies and spending decisions, and those who have lost out.
The appalling management of the Covid-19 crisis, which has led to the deaths of well in excess of 126,000 people so far, combined with those who have suffered or died as a result of cuts to government spending on vital public infrastructure and the pernicious reforms of the social security system, have revealed in all their hideous outcomes what happens when government spending is reduced to household budgeting narratives. The phoney notion that delivering public purpose is either monetarily unaffordable and/or dependent on the economic climate.
The remark reveals something rather distasteful about a Prime Minister who not long back was standing on the steps of Number 10 encouraging us to clap for key workers. Those who have been responsible for caring for the sick, elderly, and vulnerable as well as keeping the economy functioning during the crisis whether in the public or private sector.
A letter written by the authors of The Spirit Level (Kate Pickett and Richard Wilkinson) which was published in the Guardian this week took the Prime Minister to task for his comments saying:
“You report (23 March) that Boris Johnson told backbench Conservative MPs that the UK’s successful vaccine rollout was thanks to capitalism and greed. Really? Greedy academics and research scientists? Greedy World Health Organization staff and civil servants? Greedy nurses who give us our jabs? Is that also why contracts given to Tory cronies for test and trace were so startlingly successful? This is not a trivial misunderstanding: it is a fundamental failure to comprehend how modern societies work. Prof Mariana Mazzucato has shown how discovery and innovation flow from the public sector, and there are now studies showing that more equal societies are more innovative, with more patents per head than those where capitalism is rampant.”
Whilst the financial markets have produced nothing of value, focused as they are on speculation and amassing huge monetary wealth, the real wealth makers, not the monetary sort, are those on whom society depends. The past year has highlighted their contributions on every level of society. It has also highlighted the role that government can play, if it chooses, in delivering public purpose aims. Whether that is spending to keep the economy from tanking or vital public service and welfare provision, research and development and education and training; all of which make the difference between a good society and a bad one.
However, we live in a world where ‘money’ wealth trumps the real wealth we enjoy, and which is sustained and underpinned by nature which provides the many services on which we depend. Deregulation (or rather accommodation) by neoliberal governments has created a rampant market-dominated model which is threatening democracy and the future of humanity and planetary health.
This toxic market ideology is at the same time underpinned by incorrect ideas of how governments spend. Ideas which suggest that taxing and borrowing are at the heart of their spending capacity, and which, if not reversed, will continue to constrain government actions on the key issues of our day.
The art of the possible is not financially oriented. The art of the possible is about political choices, but those political choices hitherto have left our society in a state of crisis and will continue to do so unless we challenge the status quo.
Currently, the rules for government spending are laid out clearly. Stuff the pockets of the private sector corporations and those of your friends, whilst telling the public sector that there is no money and keeping private-sector workers on low wages and in insecure employment. The evidence is piling up daily.
This week Test and Trace is hiring a ‘Lessons Learnt Analyst’ with a salary of £45,000. You couldn’t make it up! Management consultants being paid to advise what went wrong with a programme designed by management consultants. As GIMMS’ board advisor Deborah Harrington so rightly asked ‘do you ever get the impression we have all somehow been trapped inside a never-ending episode of ‘You’ve been framed’?
Also, this week ministers have opened the public purse yet again to the private sector; shelling out almost £1 million to a private recruitment firm to find temporary staff for the new, but controversial, National Institute for Health Protection, which is to replace Public Health England, in what has been termed a ‘shifting deckchairs’ exercise. In reality an attempt to transfer the blame elsewhere than at the government’s feet.
Whilst refusing to pay nurses a decent pay rise, giving workers a scarcely generous increase in the minimum wage and at the same time suggesting that more cuts to public services may be in the offing, the claim that the government needs to restore its finances smells of purposeful deceit of the public. As GIMMS pointed out last week, the contradictions are increasingly evident, and it is for the public to challenge those false flags which serve ideology and not necessity.
In March 2019, the IMF warned that the world had ‘run out of firepower to fight the next recession’. It erroneously suggested that the ‘money printing’ programmes known as Quantitative Easing, which had supposedly pumped trillions into economies after the Global Financial Crash in 2008, had left the economies so weak in the decade since that the balance sheets of the central banks had ‘swollen to a level that leaves little room left for manoeuvre’. Its conclusion was that the large piles of debt would reduce the ‘fiscal firepower’, available to counteract recessions’.
The public has been led astray by terms such as money printing, public debt and borrowing, and if your suspicions have been aroused that something is not quite right then it’s time to get with monetary realities. Governments around the world have as necessity dictated created the funds necessary to deal with the fallout of Covid-19 at the stroke of a computer key. It may have been dressed up in the smoke and mirrors of QE and borrowing, but it has shown without doubt that, just as in 2008, the money is there at central level to deal not just with the consequences of the pandemic, but also to address the issues which have arisen from insufficient government spending by political decree. From hunger and homelessness to infrastructure decay and environmental degradation.
But government action so far seems to be one of half-hearted plans dressed up in overblown rhetoric, from promises to level up our communities, invest in infrastructure, education and training and deliver an effective green transition. Lots of hot air but little in the way of concrete proposals, or worse, failure to deliver on already proposed programmes.
If the UK government’s flagship home insulation scheme is anything to go by, then one should ask whether that public funding has been properly administered or is even delivering its green objectives. Indeed, in hot news over the weekend the government has decided to scrap the green homes grant which was administered by a US company. Promising a kickstart for a green recovery along with green jobs, it descended unsurprisingly into a dogs’ dinner that was, according to the Environmental Audit Committee of MPs, ‘rushed in conception and poorly administrated’, indeed ‘nothing short of disastrous. As a reader’s letter published this week in the Guardian suggested:
‘This government’s approach to the climate crisis […] is the same as it is to all other iniquities its ideology exacerbates such as poverty, inequality and homelessness. They announce a relatively small injection of cash and a couple of initiatives, careful not to disturb the underlying practices causing the problems. If [the government were] serious and really followed the science, they would end all subsidies to, and investment in, fossil fuel industries. They would also implement curbs to reduce energy and resource consumption, direct and indirect, by the UK population. That would be global leadership and would set a course for a just transition.
The government’s proposals are nothing more than a smokescreen to suggest we tried, while baking in failure for our generation and horror for those that follow.”
The problems of lack of commitment by the government are also compounded by financial institutions and businesses who, whilst greenwashing their way to profits, don’t walk the talk. This week, it was reported that the world’s biggest banks have provided $3.8tn of financing for fossil fuel companies since the Paris climate deal in 2015, despite the fact that it has been known for some time that a large proportion of oil and gas reserves must remain in the ground in order to meet the Paris targets. This is exactly the opposite of what is required to tackle the climate crisis effectively and requires urgent government action and spending on a vast scale.
Also this week, Andrea Leadsom announced a new package for parents, ‘Start for Life’, which will provide a hub network to give families access to vital support. This is the same MP who praised Labour’s Sure Start initiative and had to be reminded that government cuts had closed more than 1000 Sure Start Centres.
It seems ironic that we have a Minister who in 2012 envisaged ‘there being absolutely no regulation whatsoever… no minimum wage, no maternity or paternity rights, no unfair dismissal rights, no pension rights…’ for employees working in small businesses and who also voted to reduce the household benefit cap, to freeze the rate of many working-age benefits and for many other changes to the benefits system which have seriously impacted on the lives of those same families, now purporting to want to address the failure caused by a political decision to cut spending on benefits and other services. You couldn’t make it up.
According to reports, Leadsom still has to get the Treasury on board with her plans. Despite the fact that such funding is available at a keystroke on a computer should the government choose; it is constrained only by the availability of real resources. The question of paying for it is an irrelevant one.
Instead of worrying about costs, the government, if it really wants to level up, should have the humility to examine the consequences of its previous spending and policy decisions, and the impact they have had on families across the nation. Would it not be better to start at the roots of poverty by addressing its fundamental causes, through wage and employment policies to help families manage their lives with less financial stress and worry, and in turn create more stable home environments?
The positive knock-on effects of more government spending on public purpose which then fan out into the wider economy are indisputable and make for a healthier and more productive society. Furthermore, people with more money in their pockets are better placed to provide for themselves and will spend any extra into the economy. Simple macroeconomics. And yet the government still sees public provision as a monetary cost rather than a societal gain.
A report on ITV this week covered the appalling conditions in which many families are forced to live in council housing (although this is not confined to social housing, the private sector’s reputation is just as blemished). It was truly shocking. The Chief Executive of Shelter, the biggest housing charity, described it as ‘the worst housing conditions they have ever seen’.
If the government is determined to address poverty and inequality, then it has to put its money where its mouth is. Yes, let us invest in public service provision to support families with better and more joined-up services, but it will not help unless the government focuses as well on eliminating one of the causes of family stress. Poverty. People do not choose poverty, and unemployment, governments impose it through the ideological dogma they espouse and the policies they enact.
At the other end of the scale, Kwasi Kwarteng, the Secretary of State for Business, defending his department’s slow progress on funding for the organisation UK Research and Innovation, which has so far failed to provide any sort of certainty for the science community, blamed it on the pressure on budgets. This is not just short-sighted, as the Covid-19 pandemic has shown, society will increasingly depend on science to address key issues like climate change, but is actually nothing short of a lie in monetary terms. Furthermore, this is the role of the State. Planning for the future, not abandoning citizens to the vagaries of a market-led disaster which is sure to follow without government action.
The government is not short of a penny. It is the currency issuer. Therefore, the only constraints it faces to deliver its agenda are real resource ones. Whilst the government continues to embrace false funding models which claim monetary constraints, any plans for a just green transition that will also address poverty and inequality at the same time will fall by the wayside.
The unvarnished truth is that the phrases ‘bolstering the treasury’s coffers,’ ‘closing the tax gap’ and ‘protecting the finances’ – terms which appear regularly in the press – are illusory descriptions of how the state money system works. Vocabulary designed to make us think that the government spends in the same way households, local government and businesses do.
The illusion acts to keep us in our place, so as we do not demand too much in the way of public services or any other useful expenditure which provides social value and serves the economy.
The real questions for citizens regarding the future are about what real resources we have and how we want them to be distributed. Do we want a return to the old normal of unnecessary and wasteful private consumption, environmental destruction and the reinforcement of the vast inequalities that accompany it? Or do we want our governments to act in the public interest by commanding the resources that are available to deliver public purpose? The second option will require a shift in how we think about creating a fairer society.
Why aren’t we looking at a Job Guarantee as a mechanism to help in addressing both inequity and climate change? Why wouldn’t governments choose a macroeconomically sound proposal, which focuses on creating economic stability in times of crisis and smoothing out the inevitable cyclical economic downturns which destroy lives? Why not give working people useful, socially oriented employment instead of leaving them to rot on the unemployment scrap heap?
For too long, governments have acted in the interests of big business and global corporations, which in turn through the implementation of short-sighted employment and wage policies serving business, not citizens, have then impacted on their economies adversely.
Haven’t we had enough? Time for change!
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