‘It needs to be understood how governments have facilitated inequality in the world. Billionaires don’t happen naturally. The rules by which a country’s economy operates is controlled by governments. If people get rich, it’s because the system permits it.’
Malcolm Reavell of Modern Money Scotland, on Twitter
With the relentless daily round of bad news, both domestic and global, it must be tempting for many people to switch off or switch over to something less depressing, instead of asking how we got here and what we can do about it? Someone must be to blame, but just who?
In the UK, as nurses, paramedics and now teachers strike, with justification, for better pay and conditions and more central government funding to support service delivery, the cost-of-living emergency continues to bite, adding to that provoked by a decade of government austerity policies. Those policies have stretched their tentacles into every aspect of life in the UK. Low wages and precarious or under-employment have stripped working people of the ability to meet their needs and provide a decent standard of living for their families.
As our public services and other vital infrastructure collapses, and the lives of many people are blighted by poverty and rising inequality, it should provoke outrage, when people who are faced with decisions about heating or eating see the huge inconsistencies in the sharing out of real wealth. How is it, as Oxfam reported last month, that over the last two years, the richest have accumulated twice as much wealth as the rest of the world put together? Or that Chevron and Shell, the oil giants, posted vast and truly obscene profits on the backs of those least able to manage, even after what it must be said is the meagre support by the government, who at the same time continue to allow such companies to exploit their financial power and influence.
And let’s not forget the huge profits being raked in by western arms manufacturers profiting from death and destruction as a result of the current conflict. Frankly, it is immoral and obscene. As Naomi Klein noted in her book The Shock Doctrine: The Rise of Disaster Capitalism, ‘When it comes to paying contractors, the sky is the limit; when it comes to financing basic functions of the state, the coffers are empty.’
One could reasonably ask, is this by chance or design? Are we the unfortunate victims of an uncertain world, or is it something else? Have we been deceived? As the media pundits, the economic armchair experts who daily review with gravity the state of the public finances, keep pumping the lie that without restraint the government will run out of money. The prescription for too much government spending is cutting budgets, reducing deficits and asking people to pull in their belts and make yet another sacrifice to the god of household budgets. From the Guardian to the Telegraph, The Times and the BBC and obliging journalists, the same unending propaganda pursues the objective to keep people in the dark, on behalf of the political and corporate Establishment.
When the IMF reports as it did last week, that the UK is predicted to be one of the worst performing economies in 2023, (while others like Russia hit by western sanctions are expected to grow), it makes Jeremy Hunt’s vision for the economy laughable. The four E’s: economic growth and prosperity, education, enterprise and employment are just the latest iteration based on the same old Tory rhetoric.
We’ve been here before. Who could forget Johnson’s slogan ‘Build Back Better’, or the rhetoric surrounding his levelling up promises to address the huge and growing inequalities between the north and the south? They are often just like today’s chip paper, dumped in the refuse as the next bright idea takes the stage to bamboozle people into believing that the government has the interests of the nation close to its heart. Jumping from one plan to the next, with no idea of what action it will need to actually deliver them, and often going no further than handy soundbites at the podium.
Hunt’s Four E’s will deliver little while he remains in deficit reduction mode. And the much-vaunted Freeports which promise to create increased economic activity will actually just move economic activity from one place to another, not, in the end, creating anything except (based on international experience) more crime, money laundering, smuggling and low wages. The idea that we can leave it to business to create wealth is the lie it has always been. And the government’s priorities are writ large, as are its beneficiaries. Money for big business, war and politicians’ mates, but none for the public good.
Let’s wind back a bit and examine the consequences of Thatcher’s household budget legacy over the last decade and ask questions about what lies at the heart of government spending decisions and policies.
Ten years of crushing austerity have also left local authorities struggling even to meet their statutory obligations, let alone being able to invest in their local communities. With virtually no cash for what might be termed community wealth building, people have been disempowered as a result of disinvestment and deindustrialisation, resulting from a lack of properly targeted government assistance and from the politics of globalisation.
In the last few years, thousands of public buildings have been sold off by cash-strapped councils seeking to cover budget shortfalls. This should be the starting place for ‘levelling up’. To fix first what has already been destroyed by the Tory government through the politics of austerity, both locally and nationally.
Worse, huge sums of money have been spent by those same local authorities aiming to get a piece of the levelling up pie, better referred to as crumbs from the table, often unsuccessfully. Money which should go into delivering local services, not pitching for development money.
As a nation, we are losing the very infrastructure that provides the foundations for a healthy society and a functioning economy, whilst government prioritises big business instead, or indulges in vanity projects which go nowhere, pouring public money into private profit.
In short, the real question we should be asking is how did we arrive in this parlous state? The blame, without doubt, lies fairly and squarely on the toxic ideology of neoliberalism which has paved the way over decades to the current crises. As Lewis Carroll so aptly noted in Alice’s Adventure in Wonderland, ‘If you drink much from a bottle marked ‘poison’ it is certain to disagree with you sooner or later’. And our politicians, seem ever eager to continue drinking from the poisonous cup.
At the heart of it lies, firstly, a dependency on the flawed idea that corporations should have the freedom to do business with minimum or no regulation, and that this will eventually lead to wealth trickling down. Both parties are wedded to this idea despite the evidence that free markets aren’t free, and it hasn’t yet delivered on its promise.
At the same time, that same ideology has sanctioned the exploitation of land and other vital resources, particularly in the global south, to keep the profits flowing and people poor. The toll has been colossal, not just on human life but on the planet on which we depend for our existence. The wealth of the north is dependent on keeping those in the global south subjugated to delivering western lifestyles and at the same time has created the same inequality in western countries.
In the UK, we are just waking up to the fact that we may be an island, but we are inextricably linked to what happens globally, and our reliance on foreign producers to provide many of our needs. Pandemics and war have highlighted our dependence and the need for domestic solutions which include creating a sustainable economy to serve vital needs in food and other necessities.
Currently, we have a government, and one potentially in waiting, which is more interested in fiscal discipline than serving the public purpose. And that brings us to the second point; that this toxic ideology is underpinned by the notion that money is scarce, and therefore government must manage the public finances responsibly.
After a brief period, post-war, when successive governments spent for the public purpose, setting up the NHS, the social security system and state education, and building thousands of council homes, those same governments from the mid-’70s onwards began to rein in public expenditure using the pretence that the public finances resembled our own household budgets. The media, think tanks and other government institutions have peddled that same line for decades. If you repeat a message enough, eventually it becomes the accepted narrative.
Thus, we have it that after the pandemic rescue, now must come the pain, according to that false story. Whether it’s the Tories or Labour, the same limiting account of government spending persists. As Bill Mitchell noted in a recent blog post.
‘…both sides of British politics are crippled by the same fictional mania about having to design policies that cover spending with tax revenue…Both sides of politics want to have ‘sound finance’ – which will seriously limit what they can do.’
Whether it’s Labour’s Keir Starmer suggesting in a speech last month that, ‘sound money in our public finances comes first’, Jeremy Hunt’s intention to focus on reducing the national debt, or Rishi Sunak’s assertion that ‘people aren’t stupid’ and that anyone could see why taxes couldn’t be cut with public debt approaching 100% of GDP, and inflation in double digits, from the point of view of monetary reality, it is clear that such thinking can be described at such a moment of economic uncertainty, as shooting yourself in the foot. A barrier to serving the public purpose.
Both parties have forgotten that their duty is to serve the nation, not the economic interests of the big corporations who dictate the rules to suit themselves. That should mean the provision of first-class public services and infrastructure as a priority. If balancing the books or sound finance is the goal, then all governments of whichever stripe will fail at both.
The idea that Hunt has little option but to ‘soldier on with the fiscal thumbscrew’ is not just a preposterous deception but a harmful proposition. If we are on the brink of becoming an ‘economic basket case’ as the Telegraph suggested last week, then that is a political choice, not because money is scarce and we have to cut our cloth accordingly, but because the government has chosen another round of austerity. Have we learned no lessons?
These narratives are increasingly dominating the public discussion in the media reporting. A well-known newspaper published a headline last week that there were 2.5 trillion reasons for Jeremy Hunt to deliver a growth plan, after the “public debt” had hit £2.5 trillion.
It’s not difficult really to understand that whilst Hunt is still promising deficit reduction, such a plan will have the exact opposite effect, not to mention that a clarion call for growth without recognising the existential crisis of climate change, and targeting your growth, accordingly, will be destructive. Growth for growth’s sake should not be the objective, especially if it relates to the false notion of increasing tax revenue to spend or enable a balanced budget.
In recent weeks, the Telegraph has earned its title several times over, as the chief spreader of economic nonsense. That should be no surprise, but it is important to debunk this particular bit of twaddle. According to an article, the state pension is financially unsustainable, and we need a debate about its future. It suggested that since pensions are being paid for by today’s taxpayers, this will eventually cause a problem as the population declines and taxpayers with it.
Of course, this is quite simply not true. Contrary to belief, tax is not funding the state pension. It is a benefit that derives from a political choice to pay it, and it is calculated on how many years you have contributed, not how much you have paid in. The government is the currency issuer and creates the money every day to meet those payments, from public sector salaries to social security payments including pensions, and any other contractual liabilities it has entered into.
The government always has the funds to pay pensions, regardless of the amount, and when the Telegraph tries to suggest that young people will be the losers when their time comes to retire, it is purely a divisive and shameful tactic aimed at creating intergenerational conflict.
The only constraint relates to whether the government has invested in creating a functioning economy which can provide the goods and services that are needed today and in the future. That is the real measure of economic competence, and we can see in that respect it has not delivered.
We are being led to believe that the state is a burden on taxpayers, when in fact it has the capacity, as the currency issuer, to provide the foundations for a healthy, functioning economy that respects the needs of citizens from cradle to grave.
The Telegraph then tops its propaganda record with a report that the Treasury is turning to households for cheaper borrowing as it increases the return on the Premium Bond prize rate, suggesting that the government needs the money of its citizens to meet its ‘spiralling debt interest bill.’ Again, we have the usual smoke and mirrors with the pretence that government needs to ‘borrow’ when the government as the currency issuer can always meet its liabilities, and as such, does not need the money of those premium bondholders to cover its deficit or pay interest on borrowing. We mustn’t let Jeremy Hunt pull the wool over our eyes. Why would the currency issuer need to borrow money it had issued in the first place?
Whilst those people who are lucky enough to have the money to purchase a premium bond might relish the prospect of a better return, this is part of a great deception which constrains delivering public purpose. They are not lending to the government as the NS&I website suggests.
Furthermore, when seen in the context of a further rise in interest rates to 4% by the Bank of England this week, we can see that not only will the rich and the institutions benefit from that rise giving them additional income, but that it will also put further pressure on those with mortgages or bank loans reducing their disposable income yet again. This is not consumer demand-led inflation, or the result of spiralling wage demands, it is a direct result of external supply issues which have raised the price of energy and food.
There is only one discussion we should be having. Instead of discussing government borrowing, tax burdens, or whether the government should cut tax to stimulate growth, we should be talking about what a currency-issuing government can do to effectively utilise the real, but finite, resources it has at its disposal, to ensure a fair and equitable distribution and manage a just transition to a sustainable economy.
In other words, how the finite pie is shared out.
We need a government that actually puts public purpose before its own interests, and the interests of the ruling elites. Currently, we don’t have one; and judging by the pronouncements of the other main party, it’s unlikely that we will have one.
Whatever Labour’s plans are, so far, they seem more rhetoric than well thought out, they will not be achieved by sound finance, cosying up to the obscenely rich or influential corporations as Starmer and Reeves did when they flew into Davos for the yearly World Economic Forum meeting of unelected wealthy elites.
The theme for this year’s conference was, ‘Cooperation in a fragmented world’. One is tempted to laugh. One has to ask what sort of cooperation is it referring to, who are its beneficiaries intended to be, and just who caused the fragmented world in the first place? That can be summed up in a few words. The toxic ideology which has driven the policies and spending decisions of governments around the world, creating a world of haves and have-nots, set upon selling off the public assets of indebted nations, and not so indebted, impoverishing their citizens. This is not cooperation; this is plundering in the interest of big business at the expense of the public good.
As Thomas Fazi noted in a recent article, ‘the WEF is itself mostly funded by around 1000 member companies typically global enterprises with multi-billion-dollar turnovers’… ‘There is no need,’ Fazi writes, ‘to resort to conspiracy theories to posit that the WEF’s agenda is much more likely to be tailored to suit the interests of its funders and board members – the world’s ultra-wealthy and corporate elites – rather than ‘improving the state of the world’, as the organisation claims’.
There you have it. The cosy club that has pretentions of wanting to find solutions to the world’s most pressing challenges is nothing more than an organisation seeking to replace democracy with corporate rule dressed up to give quite the opposite impression. As Bill Mitchell wrote quoting John Kenneth Galbraith, ‘corporate power has shaped the public purpose to its own needs.’ It continues to do so through organisations like the WEF, the IMF and the World Bank. It gives a whole new meaning to the phrase ‘all in it together’.
The economist Nouriel Roubini wrote in an article that the Davos elites need to wake up to the mega threats the world is facing.
‘Far too many of us are indulging complacency at the summit and ignoring what is happening in the real world below. We are living like somnambulists, ignoring every alarm about what lies in front of us.’
Roubini is right but appears to have ignored the elephant in the room. A toxic, economic and political system in which democracy is a sham, and where the unequal distribution of wealth has become obscene. Davos symbolises everything that is wrong with a global order dominated by corporations fixated on profit, keeping power in the preserve of the few, and ensuring that the capitalist truck keeps on trucking. Frankly, unless we grapple with its causes and embrace systemic change, the future looks bleak for our grandchildren.
The politicians should be our servants, not our enemies. There is no doubt that politicians have understood monetary reality and used it for their own purposes, whilst at the same time trying to keep the public ignorant of what is possible with a government that holds the interests of its people as primary to its existence.
Change is coming. Let’s make it the change that benefits us all.
Rachel Reeves recently tweeted, ‘We can’t build a healthy economy without a healthy society.’ That may be true, but we can’t do either of those things without a government that recognises that it has the power of the public purse to implement its priorities. And equally, we cannot do anything unless government understands its role as the legislator to keep the wolves from devouring their prey.
What we choose now will define the future, given the pressing and urgent challenge of climate change. Our survival depends on taking the right path.
Join our mailing list
If you would like GIMMS to let you know about news and events, please click to sign up here
Support us
The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here