“If every politician asks the ridiculous question ‘how will you pay for that’ when it comes to full employment, universal healthcare, infrastructure modernisation, tuition-free university and sustainable energy, but no politician asks ‘how will you pay for that’ when it comes to military expansion, bombing other nations, corporate welfare, and bailing out banks, then that reality should tell you that something is completely amiss with the mainstream narrative that the federal government has no money of its own and must tax and borrow to pay for things.”
Ellis Winningham – 24th June 2017
If it’s not the inflation hawks ruling the media roost with their dire warnings about rising inflationary pressures, then it’s those lamenting the huge rise in the national debt and discussing the options for Rishi Sunak to restore fiscal discipline. Both are positions of the economic orthodoxy, which believes that bankruptcy and inflation are the inevitable results of excessive government spending. Before long, journalists are rattling the inflationary cage, sometimes with headlines peddling false comparisons with Zimbabwe or the Weimar Republic, even though in both those hyperinflationary episodes, government spending was a response to rising prices, not a cause of it.
Those banging the inflation and deficit/debt drums ignore monetary reality by claiming there is a connection between the two, instead of looking at the real reasons why the deficit has increased and what might be causing a rise in prices. However, even that bastion of neoliberal economic thought, the Bank of England, rejected implementing an interest rate rise this week, with the Monetary Policy Committee saying that rates will remain at 0.1% until the economic picture is clearer and we see whether firms will find themselves under pressure to raise prices. A sensible decision. Even as the world economy starts to take tentative steps towards opening up, there still remains much economic uncertainty, combined with what is likely to be temporary price instability, and this is not a moment to hinder any recovery with interest rate rises. As the MMT economist Professor Bill Mitchell rightly suggested in a recent article in the Guardian, ‘price spikes’ are likely to be ‘transient and will be absorbed without any entrenched inflation emerging.’
Despite this, the media has again been rattling the debt and inflation chains loudly. From the Guardian to the Inews, Evening Standard and the Daily Mail, journalists continue to spread misinformation to the public about how governments spend. With references to government racking up its borrowing to make ends meet and rising debt mountains, along with warnings in one paper of the ‘big risk of inflation as government debt hits 99% of GDP’, one could be forgiven for thinking that the end is nigh, and we are on our way to hell in a handcart unless the government gets its spending under control. Indeed, a new poll has suggested that Rishi Sunak should ‘confiscate the Government’s credit card.’
At this juncture, a little bit of historical context would be helpful to put these alarming headlines in perspective. After the second world war, the national debt stood at 248% of GDP. Yet, the government of the day set up the NHS, an education system, a cradle to grave social security system and built hundreds of thousands of houses. The UK didn’t go bankrupt then, any more than it can go bankrupt today. If we understood better what the national debt actually was and what borrowing really is, then we might worry less about the public finances and focus on the truly important issues such as the climate emergency, rising poverty and inequality and the ongoing disintegration of our public infrastructure. When confronted with the question ‘how do we pay for government programmes?’, then we would know the answers without hesitation. The curtain would be raised on monetary realities and the con would be exposed once and for all. But we’ve still a long way to go to challenge the orthodoxy which dictates policy.
According to the INews, the Chancellor is under huge pressure to start restoring the public finances at a time when the Prime Minister has made dozens of spending pledges, including his levelling-up programme. There are also almost 30 policies listed in the Conservative election manifesto which remain to be delivered and will require additional funding if they are to go ahead. The spending pledges clearly seem to fly in the face of Sunak’s plan to cut the deficit later in the year, when he has suggested that he will begin the process of ‘fiscal tightening’. The conversations between the two politicians must be very interesting! Sunak is apparently ‘scrabbling to find other ways to raise money’ as he is restricted by manifesto promises not to raise income tax, NI or VAT. With the promises to cut business rates and lower interest rates on student loan repayments, the Inews suggest that both actions will reduce revenue overall, putting the Chancellor into yet another uncomfortable corner.
Where will the money come from?
As the above paragraph indicates very clearly, the premise that governments spend like households is integral to media messaging about government finances. But it is totally incorrect. The suggestion that there is a finite pot of money available, limited by taxation and borrowing, is not only inaccurate but is likely to be used yet again in the not-too-distant future to justify cuts to public expenditure on public services. Government promises to level up or deal with the climate emergency may yet find themselves relegated to the box entitled ‘unaffordable’. It remains to be seen.
However, from a macroeconomic perspective, reducing spending now to address a ‘debt’ that isn’t, (since the government is the currency issuer and has no need of tax revenue or to borrow to fund spending and can always meet its liabilities), would be calamitous at a time when the pandemic is still proving to be a serious challenge with huge uncertainty as to the future, when global inequality is growing, and when the climate emergency increasingly demands urgent substantial government action. The only thing we can’t afford is not to act decisively now.
While the media pundits and politicians continue to argue for fiscal discipline and the debt doomsters seem to prefer more austerity, thus logically extinguishing any hope of a sustainable future for all, one can only conclude that human and planetary well-being is at the bottom of the list of political requirements. The smoke and mirrors of the public accounts is in fact being used as a weapon over and over again against people around the world.
This week, it was announced that the government would delay its plans for the reform of social care. Yet again it is being brushed into the long grass, until at least the end of the year. How to fund social care is as equally problematic for this government as it has been for previous ones. As always, it is seen in terms of its monetary affordability, meaning how to raise the funds to pay for it. The now-former Health Secretary Matt Hancock suggested raising National Insurance, but that proposition went against government promises not to raise taxes and was rejected. Sunak seems to be relying on the prospect of better-than-expected economic growth to raise tax revenues, which it has been suggested would give him more ‘fiscal wriggle room’. On the other hand, the Prime Minister, it is said, would like to appropriate that additional taxation to fund public services and for the NHS to deal with the huge backlogs that have arisen as a result of the pandemic. According to the Guardian, Treasury officials are writing a series of papers on potential revenue-raising measures.
Again, how will we pay for it?
The household budget accounting narrative yet again pulls the wool over the eyes of the public by its suggestion that the money must come from somewhere – increasing taxation or relying on economic growth to increase revenues. Not only is this disingenuous, given that orthodox narratives are now being challenged in the mainstream, and as such politicians cannot be unaware, but it also suggests that this fiction may be used again to justify spending policies to suit political priorities.
The alleged problem of how we are going to pay for it haunts public policy and constrains the ability of government to work for the public purpose. Although of course, one might suggest that most governments are not actually working for that, rather they act on behalf of the corporations which influence their policies. As Professor Prem Sikka wrote in an article in Left Foot Forward this week:
‘The last forty years of neoliberal coup has restructured the UK state so that instead of being a provider of public services it has become a guarantor of corporate profits and the enrichment of the few.’
And it is not just the Conservatives using this household budget construct. This week the Labour opposition, such as it is, rejected the motions of several Constituency Labour Parties calling for free social care. In the final version of the composite motion which originally contained two references to social care, stating that it should be ‘needs-based and publicly funded, free at the point of use’, all reference to free social care had been removed.
The Labour MP Thangam Debbonaire suggested that introducing free social care for disabled and older people would ‘give the Tories a stick to beat Labour with’, in a veiled reference to the accusation of Labour’s overspending, and claimed that such a policy would be too expensive. The implication of her words was that Labour has gone back on its leader’s pledge that he would introduce free social care if the party came to power.
According to the Disability News Service, a disabled member who attended the virtual meeting said that ‘Labour had betrayed and silenced its disabled members’ and ‘that the party was now run by ‘cowardly, unprincipled careerists’ who ‘wouldn’t know solidarity if it hit them with a big stick’.
Excuse us if we are blunt here. After a decade of unnecessary and harmful cuts to social security spending, which has left many disabled and older people struggling to get by and live dignified lives, Labour’s neoliberal foot soldier is saying, in effect, that people will have to die because we can’t afford to care. Once again, fiscal discipline must trump human well-being.
It is shameful, in a supposedly civilised society, that social care has largely been privatised and cut to the bone as a result of austerity, and that in 2019 there were an estimated 1.5 million people over the age of 65 living with unmet care needs (figures from Age UK).
The emperor definitely has no clothes. The emperor is definitely naked.
This is also clear in the supposed dilemma of the pensions triple lock and whether the Chancellor can afford to retain it in these supposedly cash strapped days for the government. It is yet again another prime example of how ‘monetary affordability’ is the measure which determines the level at which pensions are paid, and worse, it is used unscrupulously by politicians and other organisations to entrench intergenerational divisions and create resentment.
Professor Len Shackleton, from the free-market think tank the IEA, suggested a couple of weeks ago that as young people had lost out over lockdown, it would not be unreasonable to ask pensioners to share the pain. Flying in the face of data published this year, he claimed at the same time that ‘pensioner poverty is no longer the problem it used to be.’ However, according to Caroline Abrahams, Charity Director at Age UK, in 2019/20, 2.1 million pensioners were living in poverty after housing costs, representing a 200,000 increase over the previous year.
Labour MP Siobhain McDonagh backed up Professor Shackleton’s view, saying that ‘there is a need to step back and take a look overall’, adding that 44% of welfare spending goes on the pension, while young people are likely hardest hit by the economic damage caused by Coronavirus.
Once again both sides of the political spectrum fall back on the false, but self-serving, notion of monetary scarcity and unaffordability; that ultimately hard decisions will have to be made in terms of curbing government spending. Once again, the suggestion is that human beings can, and must, be sacrificed on the altar of fiscal discipline and balanced budgets. Worse, Labour seems to be saying that anything the Tories can do, they can do better, even if that means more suffering.
As the Chancellor juggles the economic balls, scrabbling down the back of the sofa for a few pennies, as the narrative goes, the real problem facing society is not whether there is enough money, but whether we have the real resources necessary to deliver political agendas. And whether the government has invested sufficiently in education, public services, and technology to ensure that the goods and services will be available for purchase in the future, and thus contain any inflationary pressures that might occur.
The future burden will not be one of debt or tax. It will be the burden arising from the government failing to act now. The real challenge, as demographic changes alter the balance between the young and retired people, will be how productive we can be and how we share the available resources equitably and efficiently. The only constraint faced by the government is one of real resources.
The government could pay better pensions tomorrow, it could ensure that the education system is fit for purpose, it could invest in publicly provided services including the NHS and social care. But to do any of those things it must have the real resources, whether human or other, to deliver its objectives. It is the only authority that can release (through its taxation and other policies) the resources it needs to move away from a society which has excessive consumption as the economic motivator, to one that is more publicly oriented and puts the needs of citizens and the planet at the heart of its policies. But will that be the political agenda? In the current environment, that seems doubtful.
The question is, what sort of society do we want to live in? To reiterate, in terms of monetary resources, we can afford to create a social care system that provides good care and dignity to its recipients. We can afford a publicly funded and provided NHS. Catch-up educational funding, paltry as it is (and which led to the resignation of the Education Recovery Commissioner this week) to mitigate for the past year of lockdown and its effects on children is not what is needed for schools. After a decade of funding cuts, we need the government to invest in the education system to create rounded individuals, not market-oriented automatons, with the focus on real skills and promoting creativity and imagination as a path to a better, fairer, and more sustainable society. We can afford good public services and fund local government to deliver social and economic objectives. The issue lies in how we want the finite real resources we have, which includes the efforts of people, to be used. Do we want them to be employed in creating more useless stuff, or do we want these resources to be utilised to create both real economic benefit and social well-being?
Instead, as the Chancellor claims the money box is empty (regardless of the fine rhetoric spouted by a Prime Minister about levelling up) we have a government seemingly bent on abandoning the public and social infrastructure that will sustain future generations. Regardless of what politicians promise, that is the only conclusion one can make if the household budget narrative of government spending prevails.
As the Chancellor threatens either more austerity of the public sector kind or increases in taxation to get the finances back in order, it begs the question how that can be reconciled with the need to address the climate emergency and the vast global inequalities that have arisen as a result of the toxic economic system which predominates. Perhaps he is expecting the private sector to come galloping to the rescue – he certainly has ensured their coffers are full to the brim over the last year.
But, in reality, it is only the State that can put in place the foundations for the economic and societal transformation that will be needed to address all aspects of the climate crisis, which include rising global inequality, resource use, and land and ocean degradation. It is only the State that has the monetary resources, the legislative capacity, and the political drive to do so.
As a landmark draft report from the IPPC leaked to the AFP (Agence France Presse) and reported on by phys.org made clear this week:
‘Climate change will fundamentally reshape life on Earth in the coming decades, even if humans can tame planet-warming greenhouse gas emissions. Species extinction, more widespread disease, unliveable heat, ecosystem collapse, cities menaced by rising seas — these and other devastating climate impacts are accelerating and bound to become painfully obvious before a child born today turns 30. The choices societies make now will determine whether our species thrives or simply survives as the 21st century unfolds’.
Boris Johnson made a glowing commitment last week at the G7 to address the climate crisis, and Ann Marie Trevelyan, the UK’s International Champion on Adaptation and Resilience for the COP26 Presidency, claimed in a recent Channel 4 News interview that the UK is leading the world on climate change. But we should not forget the political realities. Not so long ago the UK government, to the consternation of climate campaigners, was supporting a new deep coal mine in Cumbria, and it announced this week that it is considering allowing drilling for a new oil field in Shetland, containing 800 million barrels of oil, which will produce fossil fuels until 2050. Also, this week it was revealed that oil and gas donors gave over £400,000 to the Tories over the past year, whilst the government considered new licences to explore the North Sea for fossil fuel production sites.
This doesn’t sound much like a government deeply committed to carbon emission reduction, any more than one committed to addressing other key issues caused by decades of toxic neoliberally inspired policies which have been driven by the notion of the precedence of the market over state provision and monetary scarcity.
The path we choose today will shape our future. Grasping the real capacities of currency-issuing countries will be essential to influencing what happens next. Never let it be said by anyone that we didn’t know how governments spend, or that public purpose programmes were perfectly affordable within the boundaries set by real resources. Let’s keep PUSHing. Let’s ‘Persist until something happens!’
Upcoming Event
Phil Armstrong In Conversation with Mike Hall
Sat, 3 July 2021 – 15:00 – 16:30 BST
GIMMS is delighted to present another in its series ‘In Conversation.’
GIMMS Associate Member Phil Armstrong will be talking to MMT activist Mike Hall.
Mike is a retired engineer and a liver of life of many parts including as an Industrial Controls Engineer, Windfarm Engineer, General Manager of IT refurb resale small business, Worker Co-op founder and local authority Co-op Development Worker. He studied for a Masters in Business Administration at Cranfield (UK) and has been an MMT activist for 11 years. He is also a grandfather and a lover of Jazz!
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