“The decadent international but individualistic capitalism in the hands of which we found ourselves after the war is not a success. It is not intelligent. It is not beautiful. It is not just. It is not virtuous. And it doesn’t deliver the goods.”
― John Maynard Keynes
And in other surprising news this week, Tory HQ has reported that after counting the votes, Larry the Cat has been overwhelmingly elected as the next Prime Minister. Of course, we jest, but it might just as well be.
After a turbulent and unstable week in politics which saw Jeremy Hunt, the former Health Secretary, appointed as Chancellor to replace the doomed Kwarteng, multiple U-turn Liz Truss resigning after only 44 days in office, and Boris Johnson reportedly trying to make a comeback in yet another Tory leadership election, we seem to be living in a brutish, upside-down clown world. One in which people’s hardships resulting from rising energy and food costs are dismissed as secondary to the hubris of politicians engaged in saving themselves and a toxic economic paradigm threatened by geopolitical instability and a changing world order.
On the one hand, we have Tory politicians shamefully fighting like rats in a bag to save their divided party, along with a new Chancellor bowing to market pressure and advocating more austerity, as if we haven’t suffered enough on that score already and paid a heavy price for it these last two and a half years. Economic pressures that have added to the already precarious situation that preceded them and resulted from government policies. Low wages, precarious employment, hunger and homelessness, the shameful rise in food banks, and a public and social infrastructure hanging on by a thread.
On the other hand, we have an opposition which, at the same time as proposing the same growth agenda favoured by Truss, continues to shoot itself in the foot by promoting fiscal responsibility. In trying to sound competent they are actually removing the only efficient tool that the currency-issuing government of the UK has at its disposal to keep the economic ship afloat, plan for the future or achieve said growth. This tool is the use of fiscal policy through targeted spending and taxation programmes to adequately support people in these dark times, ensure a fairer distribution of wealth, and reinvest in the public and social infrastructure which has been undergoing a politically motivated collapse. Only such action will create the solid foundations to enable us to navigate our way through the growing global economic malaise, which is afflicting the nation and beyond, and tackle the existential climate crisis humanity is facing.
On both sides of the political spectrum, policies are always couched in household budget economics – taxes in, spending out, and borrowing if all else fails, thus seemingly putting states at the mercy of lenders and burdening future generations with debt if expenditure is not kept under control! That’s how the story goes. It serves an agenda. Both sides follow a uniform pattern which has dominated over decades. Neoliberal, market-led economics. Governments as servants to the market, not its master.
These last few weeks or so have given us an ample demonstration of how our political class is super sensitive to the ‘market,’ predominantly the financial sector, and to the diktats of the mandarins at the Treasury and OBR who have proven they are willing and able to usurp the will of an elected government in favour of a deep state agenda. Increasingly, it is becoming clear as Western-imposed oil and gas sanctions on Russia begin to bite, even as winter approaches, that UK and EU leaders serving Washington’s hegemonic interests are oblivious to the needs of their people or indeed those of the Global South.
Narratives are created, and it was only a matter of time before something happened. Thus, it was Kwarteng’s proposal for unfunded tax cuts (heaven forbid) that caused a media meltdown with papers like the Guardian quoting the Institute for Fiscal Studies, suggesting that he would have to find £60bn of savings to fill the tax gap and the costs of extra borrowing.
Truss and Kwarteng had based their fiscal interventions aimed at growing the economy on the false trickle-down narrative, which, in reality, has only served to trickle wealth upwards. Over decades, despite the promises that wealth created at the top would trickle down eventually, government continued to smash the public and social infrastructure to pieces on the spurious notion of financial unaffordability. In this way, it has furthered its own ‘lean state’ agenda, whilst pouring public money into private profit rather than public purpose.
Indeed, both Kwarteng and Truss, in their speeches at the Conservative Party conference, emphasised that we cannot have a strong NHS, good schools or fund our armed forces, without a strong economy. Essentially, tax first, then public services miraculously become affordable, the caveat being if the government chooses to fund them.
At the same time, the state that apparently has no money for funding public purpose programmes has become little more than a cash cow for the corporations servicing public provision and dodgy contracts for PPE, providing a nice and secure interest-bearing nest egg for gilt purchasers in the finance/pensions sector, or a useful bail out mechanism when they go belly up. In simple terms, the public has been had, taken for a ride!
The employment of fiscal levers, useful as they are, does not mean that the unaffordability framing would not have continued in the future, as far as publicly paid-for service provision is concerned, as these are political choices, not financial ones. A fact that slips the public’s notice as the media grinds it down with the horrors of deficits, borrowing, debt, and burdens on future taxpayers. An act of sleight of hand to keep a public who are ignorant of monetary reality, distracted.
Furthermore, the only logical conclusion one could make is that if the growth predictions had proved wrong, as they well might in these dark, uncertain times, then presumably investing in public services would have also been unaffordable. It would have been only a matter of time.
Likewise, Labour is promising to be the party of ‘sound money’ and advocating taxing the wealthy or imposing windfall taxes to fund its plans including a green agenda (the latter taxes now also being suggested by Hunt but to fill the so-called black hole in public finances). Again, such household budget narratives create a vicious and limiting circle on government action, as it inevitably has to respond to changing economic conditions, whoever is in power.
This is everything that is wrong with the household budget narrative. It shrinks what is achievable in terms of public policy. It fails to recognise that the only constraints to spending that the government faces are real resources, from labour, the people who do the work, to the raw materials and goods which provide the basis of a functioning economy. It also fails to recognise that a healthy economy is dependent on healthy, educated people who have good, secure, well-paid employment, enough to provide the necessities of life, and have access to good quality public services, and welfare support when the unexpected happens. These are the real measures of economic success.
Aside from the household budget framing that the mini-budget was couched in, it wasn’t the fiscal intervention in itself that was wrong, but who was benefiting the most or losing out from it. Again, these are political decisions, not financial ones, and do not reflect monetary reality. They are based on the toxic economic dogma of market supremacy, individual responsibility, and punishment of those deemed to be lazy and dependent on state handouts. It is exemplified by the Tory Chair suggesting that all struggling people need to do is get a better-paid job. Or Tory MP Lee Anderson claiming that it is possible to prepare a nutritious meal for 30p.
Kwarteng’s mini-budget could be described, as Ellis Winningham did in a Facebook post recently, as, ‘more of a maxi-benefits payment without requiring the rich to attend Job Centre appointments or face sanctions, to depend on universal credit, or any other malicious obstacles.’ Instead of adequate support by the government to help people during this grim time through additional public programmes and financial aid to help them directly, the price-gouging, profit-hungry energy corporates were the immediate beneficiaries of government spending. Instead of legislating against corporate profiteering, the government has sanctioned it. It’s a case of political priorities, you know.
So, now that the government and its opposition have been sent a stark warning not to spook the markets, Jeremy Hunt, brought in to calm them has declared, that ‘We must take decisions of eye-watering difficulty.’ That’s code for more austerity, cuts to public and social infrastructure, and let’s be absolutely frank, not only damaging people’s livelihoods but also cutting short their lives. It is a thread which reappears with common regularity.
In 2016, Hunt, as Secretary of State for Health, declared that whilst, ‘Investing in the NHS will always be a priority for this government, [..] the simple fact is this: an economic shock [at that time Brexit] would put pressure on our finances.’
Like his predecessor, Kwarteng and the shadow chancellor Rachel Reeves, he is repeating yet again the same false narrative that, ‘Strong public finances are the foundations of a strong economy,’ and insisting that he will do, ‘whatever is necessary to drive down debt’, to ‘ensure that taxpayers’ money is well spent’ and put ‘the public finances on a sustainable path.’
Thus, after a couple of years when money seemed no object to keeping the economy functioning during a global pandemic, even if some got more than others, the household budget narrative and the dogma of sound finance which has formed the basis of successive government policy from the 70s onwards, has been, yet again, reinforced, and politicians on both sides will continue to dance to the tune of the markets to the detriment of those people who will be on the receiving end of this new round of austerity.
According to the Financial Times, this week the government will have to raid the profits of banks and energy companies to fill the £40bn black hole in the public finances. In addition, according to the same article, it will also have to exert tight spending control to bring Britain’s deficit down, which will inevitably result in more public sector cuts. This is the language of lies aimed at creating fear and public compliance. There are no black holes and taxes will not fill them, any more than cuts to public spending. This is all part of the accounting smoke and mirrors which defines government messaging. For a more in-depth discussion of how government really spends follow the link below.
This fearmongering is used by both political parties as a weapon with which to attack their opposition, to the detriment of a functioning economy. And yet, while Hunt promises more austerity, overturning most of the tax measures set out in the mini-budget, and only sparing the reversal of the previously announced national insurance contributions and the cut in Stamp Duty (which will not make much difference to the poorest anyway), he has seen fit to persist with scrapping the banker’s bonus cap. Heaven forbid that we should have equity or fairness. After all, (sarcasm warning) these are the wealth makers. Thus, yet again, it demonstrates where Tory priorities lie.
And as for reinstating the rise in corporation tax, as if it provides revenue to fill that black hole the media keeps talking about, all the evidence points to corporations passing the costs on in prices, potentially further adding to inflationary pressures which, in turn, will fall on the poorest and further depress the economy.
George Osborne, the former chancellor, and author of the first round of austerity, the destructive consequences of which are still being lived, should be denounced for his tweet a few days ago in which he congratulated Hunt for ‘taking big bold steps to restore UK fiscal credibility,’ presumably to soothe those delicate market sensibilities. We must keep on asking the question who’s really in charge here, but choosing to cede its power to the markets instead? Japan has already shown the way and told the markets who’s the boss. As the economist Bill Mitchell notes:
‘A Modern Monetary Theory (MMT) understanding shows that the sovereign government (central bank and treasury) typically calls the shots over the financial markets.
It sets the rules, has the currency capacity to set yields and volume, and can stop issuing debt altogether if it chooses.
The financial markets are supplicants.’
What the recent shenanigans demonstrate quite clearly, as again Professor Mitchell notes, is that the current economic turmoil is down to weak government, not excessive deficits. Politicians who have caved in at the first hurdle and failed to stand their ground.
It was also shocking to read a Telegraph headline this week which suggested that ‘The city is being sacrificed to balance the books.’ It would better read that it is ordinary people who will be at the sharp end of this economic hokum pokum, which surely can only lead to weaker growth and a deeper recession as people cut back their expenditure, companies reduce their stock inventories and cancel investment plans.
Ultimately, the whole economy will suffer from the knock-on effects of yet more austerity, although it has to be said that while the rich will hoover up the gains of austerity just as they did in 2008 when the banks failed, it will be the poorest that will suffer the most, as always.
As Christian Reilly from the MMT podcast so rightly tweeted the obvious this week:
‘One person’s spending is another person’s income.’
As the government tightens its fiscal belt by removing spending power from the economy, and the Bank of England continues to raise interest rates thus increasing unemployment as credit becomes more expensive, a recession will become a self-fulfilling prophecy. Austerity will bring a halt to an already staggering economy.
Thus, we now have a situation that demotes government to a rule taking back seat and where markets are seen as omnipotent and not to be challenged. The consequences will be far-reaching, whichever government is in power. On this basis, not only will they be able to justify cutting spending on vital public programmes when the financial rules demand, or in response to the inevitable economic cycles, but it also allows them a get-out clause to continue the political project of decades, driven by successive governments, to destroy public infrastructure in favour of a profit-driven, corporatised public sector. Government prostituting itself to the markets and politicians ensuring their political careers and the revolving door that follows.
Surely, we don’t need to be a socialist or ‘on the left’ to know that economies work better for everyone when governments act in the interests of all their people, not the few? And when they plan, through targeted tax and spending policies that aim for an efficient and fair distribution of real resources which benefit all, and preserves, at the same time, the planet which sustains human survival? These are not pie-in-the-sky aims. They are fundamental to creating a fair society and ensuring our continuing existence on this pale blue dot in the universe. The question now is whether or not we can turn the titanic before it hits the iceberg.
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