The ‘government as household’ myth is directly responsible for neoliberal governments getting away with treating the welfare of citizens (those they are meant to represent) as non-essential discretionary spending. As something they will ‘get to’ if there is ‘room in the budget’.
Jason Restante on Twitter
It’s the party season! No, not that sort of party season. The yearly political charade where the empty rhetoric of our leaders fills the conference halls and audiences clap enthusiastically, swept along by the emotions of the moment. Whilst Liz Truss promised to grow the pie, so everyone gets a bigger slice, Keir Starmer vowed to tackle inequality, invest in the future, and build a more secure and prosperous economy. However much we might acknowledge or feel sympathy for the sentiments expressed, depending of course on one’s political point of view, what connects these pledges? There is a common thread. More of the same economic bunkum which drives the agendas of the main political parties. The household budget thinking of fiscal discipline and how you pay for stuff are two key themes, along with market solutions to everything. Neoliberalism on steroids whichever party you get.
Starmer declared in his conference speech that Labour’s priority would always be financial responsibility, knowing the value of people’s hard-earned money, and not spending money the country can’t afford. In the same vein, he suggested that Labour’s agenda could be paid for by introducing a British Recovery Bond that would, ‘raise billions to invest in local communities, jobs and businesses and help ‘build the infrastructure of the future’, and that the ‘only way to deliver social justice and equality’ would be through strong partnership with business.
Clearly, the concept of the public purse and the currency-issuing powers of government, or the fact that government doesn’t need to raise a bean to pay for anything, either have escaped him, or more likely suit the globalist agenda of which he is a trusty supporter, like his Conservative counterpart. Corporations rule the roost.
In the same way, in her own Conference speech this week, Truss, whose plan was to grow the economy through the now doomed and reversed tax cuts for the richest proposal, and the long-discredited so-called trickle-down effect, framed her agenda similarly. ‘I believe in fiscal responsibility. I believe in getting value for the taxpayer. I believe in sound money and the lean state.’ And ‘we will keep an iron grip on the nation’s finances, she said. Aside from the consequences of growth at any cost (amongst which a deregulatory business free for all, ‘full fat’ freeport investment zones, rather disingenuously compared by her to Cadbury’s Bournville model village founded in Birmingham on quaker principles, and an increased focus on domestic fossil fuel-based energy security which this government is fixated upon), the idea that growth by any means will facilitate funding for public services through increased tax revenues is part of the false narrative that prevails.
It is a pernicious thread which ran through the speeches of both the party leaders and their Chancellors.
The Chancellor Kwasi Kwarteng, echoing the Prime Minister, again committed the government to economic growth – ‘backed by an ironclad commitment to fiscal discipline’, (ironically a phrase used by Labour’s Rachel Reeves a few weeks ago), suggesting at the same time that we cannot have a strong NHS, good schools or fund our armed forces without a strong economy. The same old false narrative that tax pays for public services which at the same time suits the small state agenda so much beloved by the Institute for Economic Affairs, which Truss has close links to.
Likewise, his opposition sidekick did exactly the same. Her speech is littered with references to household budgeting. Reeves pledged that she would reform the tax system so that they would not, ‘be balancing the books on the backs of working people’, because whilst good public services have to be paid for, how they are paid for should be a ‘test of our values’ she said. Yet again, taxing the rich is the left-wing answer to everything, and one which, if fiscal discipline remained the name of the game, would ultimately stop any progress stone-dead. While Ms Reeves continues to dig herself into a hole by talking about being the party of fiscal responsibility, if she continues to premise Labour’s plans on monetary affordability instead of monetary reality and real resources, she will constrain its ability to actually deliver its agenda, whatever that is.
One might fairly agree with Reeves that we cannot return to the ‘failed approach of austerity’, although one might question whether it has failed relative to whom it was designed to benefit in real and ideological terms. Clearly, such an agenda would not and has not, delivered a functioning economy. We have the painful proof of the last 12 years of Conservative economic policy which has resulted in further privatisation of public assets, a public and social infrastructure now on its knees, a social security system not fit for purpose, and the economic and social consequences of rising poverty and inequality, now being exacerbated by both the effects of the pandemic and the conflict in Ukraine, linked to the global supply of vital commodities.
But Reeves’s model is still based on the false narrative that good public services have to be paid for through tax revenue, and in such terms the logic pursued is that that can only be achieved through growth. Whilst recognising that trickle-down has failed as she did in her speech, by talking as if tax funds public spending, she is still promoting a version of Liz Truss’s ‘growing the pie so everyone can have a bigger slice’. In her mind, it might be a different type of slice, but a slice all the same.
Both sides of the political spectrum, (such as it is these days and one might question whether there is much difference), promote economic competence as being the holy grail of success, linking it as they do to being fiscally responsible, the balanced book approach. But the real claim to economic competence can only be through viewing it through the real lens that determines the economic record of any government.
This lens shows us that the true measures of the government’s economic record are resource management, who benefited and lost out from legislative and spending policies, how well the inevitable cyclical economic ups and downs were handled, and now the biggest question of all, how well the government is preparing for a changing world in terms of both the climate crisis, (now relegated to the back burner), and a shifting geopolitical order which is underway. Continuing to measure economic health in monetary terms can only lead to a dead end.
The party conferences have played out against the backdrop of growing global environmental, economic, geopolitical, and social instability. As poverty and inequality grows, and droughts, famine, and cataclysmic storms and floods which have been caused and aggravated by toxic economic ideology continue to inflict great suffering on citizens around the world, particularly in the Global South, we still cannot get away from the daily drumbeat by politicians, think tanks and journalists that puts book balancing over economic, environmental and social well-being. Our leaders are acting like rabbits in the glare of oncoming disaster. The old world is dying, and they are conniving in maintaining it in all its horror.
Whether by ignorance or design, and it’s probably the latter, household budgets rule.
Kwasi Kwarteng, having been forced to abandon plans to abolish the top rate of income tax which had formed a major part of his economic policy, formulated in the false narrative of growing the pie to raise tax revenue and provide public services or pay down public debt, he is now using that same narrative to claim that, as a result, there is no alternative but to impose more austerity. He confirmed this week public services could face further cuts of up to £18bn per year.
According to the neoliberal think tank the IFS, this might mean that Kwarteng will have to cut 200,000 public sector jobs to meet his spending plans, at a time when the public sector is already on its knees as a result of real terms pay cuts, a severely depleted workforce and service infrastructure which can no longer cope with demand. The pandemic has demonstrated conclusively that the public sector is a lynchpin for a functioning economy, it sets the bar for everything else, and Kwarteng is planning, like his predecessors, to undermine it yet again.
He has also yet to explain how removing £18bn from the economy in spending cuts can lead to the much-vaunted programme for growth.
The rich are not the engines of growth. Working people are. It follows then that people with no money in their pockets don’t spend, and as confidence dwindles, then even less is spent, or invested by businesses. A downward spiral ensues. It’s as simple as that. This is state-sponsored impoverishment, and a further decaying economy will be the result. The Chancellor pandering to the debt doomster predictions now seems bent upon piling up more misery upon a nation which has borne twelve years of it already.
In the same week, another pillar of neoliberal ideology was shaken as UK private pension funds all but collapsed and had to be rescued by the Central Bank. Yet another example of how the economic system which prevails is fracturing and its shortcomings exposed, while our leaders continue to fiddle as Rome burns.
Thatcher’s pension reforms, promoted by the free-market Centre for Policy Studies think tank, which allowed for transferable pensions to replace old-style occupational schemes, and also had an objective to weaken the state’s own provision, have wrought this disaster. And, as usual, the government through its central bank stepping in, has had to pick up the pieces left by unstable and unpredictable markets.
As Dirk Ehnts tweeted this week:
‘Private pensions do not and cannot work without support from the state institutions. Financial instability has to be cured by government action, or it will collapse. This is why we have central banks in the first place!’
Central Bank independence is a figment of the imagination. It may have responsibility for managing the blunt tool of monetary policy as we are currently experiencing, but it does so at the behest of its political masters who appoint its committee and through them drive fiscal policy.
The role of the state is fundamental and primary to the existence of markets, and it makes the rules. The central bank is its servant.
Just as we relied on them to bail out the ‘too big to fail’ banks in 2008, we are seeing the same happening for private pension funds. For a more in-depth analysis of what happened, Dirk Ehnts discusses the reasons in the opening part of this MMT Podcast.
Ordinary people, their lives put on the line and made dependent upon the natural instability of markets and the whims of traders, have paid a heavy price for these state-created, market-oriented policies. And yet, powerfully, at the same time, it has emphasised again the currency-issuing powers of government to deal with economic instability, and that these are political choices not driven by the state of the public accounts.
Enough is enough.
Let’s stop being taken in by the smoke and mirrors which keeps this rotten, decaying system going.
This week the Mayor of London Sadiq Khan tweeted, ‘Balancing the books on the backs of the poorest after cutting taxes for the very richest is morally bankrupt.’
Indeed, whilst one would agree with the sentiment expressed, the response should be clear.
What if we knew that the UK government, any UK government, didn’t have to balance the books on the backs of the poor? What if we knew that the UK government is the currency issuer and that it doesn’t have to tax or borrow in order to spend? What if we knew that the government spends based on its political priorities, not the state of the public finances? This would change forever the power relationship between the government and its electorate.
Our world would still not be perfect, that is true, but it would open up a vast set of possibilities to create a fairer and more sustainable world for all.
In the words of climate scientist, Peter Kalmus:
‘The biggest success of capitalism, and the most insidious, was making it seem like the best system to almost everyone within it. But we could do so much better. We could have a system whose overarching goal is flourishing for all instead of maximum wealth for a few.’
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