“An attitude to life which seeks fulfilment in the single-minded pursuit of wealth – in short, materialism – does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited.”
E.F. Schumacher – Small Is Beautiful: Economics as if People Mattered
Anyone remember when Boris Johnson hid in a fridge to avoid being interviewed by Piers Morgan? It’s getting to be a habit. While the country’s economy reels, and people’s lives are wrecked by growing global instability, rising energy and food prices, and the consequences of 12 years of damaging Tory economic policy, Johnson decided to sneak off to Kiev instead of meeting Tory activists in Doncaster, prior to this week’s by-elections in Tiverton and Honiton, and Wakefield. As a Tory MP suggested, “The PM ought to be making every effort to support and respect the people who hold his future in their hands.” Not for the first time, he fell short of the expectation that Ministers should serve the interests of their citizens and not their own.
The by-election results are a testament to people’s growing disaffection, not just with the Prime Minister, but with the Tory government, which has demonstrated time and time again its priorities in terms of in whose interests they govern. Priorities which have impoverished many and enriched the few, and left the public and social infrastructure unable to respond effectively to the economic threats it has faced and continues to face. Thus, in a predictable flurry of tactical voting, Labour lost its deposit in Tiverton and won Wakefield, and the Lib Dems lost their deposit in Wakefield and won on a huge swing in Tiverton.
As positive as this might be viewed, and regardless of whether Johnson does the decent thing and resigns, the country still faces two more years of Tory rule, with all the economic pain that is likely to bring. Leopards don’t change their spots, unless of course it’s in their interests to do so, as is the case with Rishi Sunak’s reported decision this week to restore the pensions triple lock next year. Clearly a bribe to give their retired voting supporters a reason to put yet another x on the voting slip.
Worse, even if there were an election tomorrow there would be little choice on offer between three political contenders still wedded to serving the City and big business, and the neoliberal ideology that has dominated policy for decades.
We have three political parties whose policies are driven by the household budget narratives of government spending, rather than spending in the context of the real resources that the UK government has at its disposal, and which are the real constraints that need to be managed to avoid inflationary pressures. In the light of that framework, these are spending choices which are political and not monetary in themselves, and which determine who gets the pie. And over the last decade and longer, it is very clear who have been the winners and losers.
In this respect, the household budget narrative of how a government spends continues to frame the debate through headlines and articles which analyse the public accounts, and in doing so, keep the false mantra of public unaffordability in the public eye.
This week, Sky News in its headline suggested that the government had been ‘forced to hand over £7.6bn in record payments on public debt after inflation pushed borrowing costs to some of their highest levels on record’, and the same news outlet also reported that the National Debt had grown in April by £18.6bn. The Telegraph also suggested that it would cut the Chancellor’s ‘headroom’ for further spending or cutting taxes.
Just more of the same old nonsense.
The government has not, in fact, been forced to do anything of the sort. These references represent part of the smoke and mirrors that are intended to deceive the public about the nature of how the government spends. The government as the currency issuer is always able to meet any liabilities in its own unit of account which include maturing bonds. Those bonds do not constitute borrowing in any shape or form, any more than taxing creates the funds allowing governments to spend.
When Michael Gove warns ‘tough times’ are ahead and claims that the pressure of the public finances means that government is unable to provide the level of support to people it would like, it is a whopping lie of the first order.
It is vital, therefore, to bring clarity to the public about how government really spends. It boils down to a few simple facts: The government is the currency issuer and has to spend money into existence before it can collect any tax at all, or issue bonds. Contrary to belief, the issuing of these bonds does not constitute borrowing, rather they form a safe savings mechanism for big corporations which allows the Central Bank to manage its target interest rate. Furthermore, the government, as the currency issuer, can always meet those liabilities and any interest accrued upon maturity.
As for the National Debt, that is quite simply all the money the government has ever spent into existence and didn’t tax back. The money that circulated in the economy. Not something that anyone needs to spend time worrying about. People should instead be concerned about a government using the language of taxation and debt to deny them functioning and quality public services. And which, combined with government market-led policies, have been responsible for the low-wage economy and the growth in food banks and homelessness, while at the same time immorally lining the pockets of large corporations and their rich friends.
Sunak is endlessly given a platform by a compliant media to repeat his messages that government, ‘must take a balanced and responsible approach to support now, while also not burdening future generations’, or that it is, ‘making sure every penny of hard-earned taxpayer money is being spent on our world leading public services.’
On that last point, it is ironic that Sunak thinks that his government has created a world-leading public service sector, when it is clear that over the last 12 years it has done the exact opposite. It has devastated them whilst driving its privatising agenda. The state of our NHS is living proof of that, as a Panorama programme earlier in June demonstrated, as an undercover reporter exposed the scandal of a US-owned company, Operose, which is prioritising profit over patient care. With staffing shortages, rising waiting lists, crumbling NHS infrastructure and a demoralised workforce, we are paying a heavy price for government policies and insufficient public sector funding.
If governments seek to be accountable, that should be related to their policies and achievements, or not as the case may be, not whether they have been fiscally responsible.
As for the claimed burden faced by future generations which this blog has spoken about many times, the only debt that will be owed to those future generations will be the one created by government failure to invest in the country’s infrastructure today, to ensure that one can be as productive as possible tomorrow. Instead, based on our current trajectory, the country faces a bleak future based on using the public accounts as the measure of a country’s economic success or failure.
While the Tories bet on continuing to con the public with their talk of the necessity to be fiscally responsible, a couple of weeks ago Labour, in the same vein, took the Tories to task over its own published record on the public finances which showed that Labour presided over nine budget surpluses compared to the five under the conservatives. The data also indicated that the highest peacetime deficit came under the Tories during the pandemic. The report also said that Labour had ‘failed’ to set out how they would pay for their spending measures and attacked the party for its ‘reckless’ approach to the public finances and the third-highest deficit ever recorded after the second world war and the pandemic.
This is yet more of the nonsense which prevails in political circles and is reported by the mainstream media.
Firstly, whilst Labour chases rebuilding its reputation as being fiscally responsible, it, like the Tories, adheres to the false notion that balanced budgets and surpluses are the golden grail of public accounting. It is unfortunate that Labour and the Conservatives choose to conduct a war based on who supposedly has been the most fiscally disciplined, rather than examining the background to those surpluses and basing their critique on that. Surpluses, just as deficits are neither good nor bad in themselves and simply represent government spending and taxation in relation to the economic circumstances that prevail.
We should reject the implied notion that government surpluses create savings that can be used later to fund public expenditure. As Bill Mitchell explains:
‘A budget surplus exists only because private income or wealth is reduced.’
It is the context of that reduction that is all-important.
The real consideration should be an examination of why there is a surplus or deficit. What were the economic reasons? The pandemic, the global financial crash and now the global uncertainty arising from rising energy and food costs are three examples of why deficits of both political parties increased, to save an ailing economy facing recession and alleviate the associated human consequences. There was no alternative, unless one preferred economic collapse to ensuring that a country could function during difficult times. The point of contention might be who the beneficiaries of the government spending actually were, and the question was it a fair distribution?
Surpluses equally can arise when government fails to spend adequately, thus pushing the non-government sector into increasing its debt burden, which ultimately has an unavoidable consequence as debt levels become unsustainable as they did during the build-up to the Global Financial Crash.
As Bill Mitchell wrote in 2009 and as we are currently experiencing:
“In terms of fiscal policy, there are only real resource restrictions on its capacity to increase spending and hence output and employment. If there are slack resources available to purchase then a fiscal stimulus has the capacity to ensure they are fully employed. While the size of the impact of the financial crisis may be significant, a fiscal injection can be appropriately scaled to meet the challenge. That is, there is no financial crisis so deep that cannot be dealt with by public spending.”
What was true then is true today. So, whilst Labour and the Tories fight their battles on the premise of fiscal discipline, the elephant continues to thrash about in the room. It is worth reiterating that the only measure of a government’s economic success is what it actually did to preserve a functioning economy in good times or bad, and the outcomes of those decisions. Not whether they lowered the deficit, balanced the books or recorded a surplus. Our political parties have it all upside down.
Whilst the endless merry-go-round of public indoctrination and deception by politicians and a compliant mainstream media continues, scarcely a day goes by when that dreaded word ‘inflation’ is not mentioned to keep the troops fearful and in their place as if they were not already suffering enough. Articles in the mainstream media castigate the Bank of England for not acting sooner to curb it with interest rate rises or suggest that it has to go much further yet.
As people struggle to keep their heads above the water as the rises in the cost of living continue to bite, the government once again shows who in the pecking order are its priorities.
This week the Treasury said that there would be no ‘inflation-busting’ pay rises for the public sector and urged private companies to consider similar pay restraint. At the same time, it defended its above-inflation rise for pensioners and its plans to cut limits on director and non-executive pay, as part of a package of business deregulation. On the last point, have we learned no lessons at all?
Whilst Sunak insists that pay rises for workers should be, ‘proportionate and balanced’, to prevent price pressures getting out of control, at the same time he claimed that the planned increase in state pensions was different because high pensioner incomes do not feed into the cost for businesses creating goods and providing services.
As Ben Riley-Smith from the Telegraph pointed out, Downing Street’s arguments about pay and inflation now make little sense. It seems yet again that in a low-wage economy in which working people were already struggling, the government are choosing to throw them under the bus yet again to curb inflation at a time when wages are already falling, and demand is sinking as retail figures showed this week. When costs rise, uncertainty rises with it, and then impacts the high street.
There is absolutely no distinction between income increases via pensions or pay all will add to aggregate demand and the capacity to spend. This is a deliberate choice by the government and smacks not of economic common sense but political bias. Long forgotten are the claps for the people who kept the economy functioning during the pandemic.
These inflationary pressures as Martin Lewis the Money Expert suggested, result from supply-led problems, not demand-led ones, and such interest rate rises will feed through into the cost-of-living pressures already being felt by working people.
And as the economist John T Harvey noted in an article in Forbes:
“… it’s abundantly clear that the lion’s share of what we are facing today is being driven by supply-chain issues […] Gas prices are not going up because people had so much money they wanted to do some more joy riding and oil companies couldn’t keep up. Rather, as with the OPEC oil embargo in 1973, a geopolitical event has created uncertainty and a decrease in supply. These are the factors responsible for our inflationary woes. […] Nothing in our current scenario suggests that lowering the level of economic activity […] would be helpful.”
And yet, as the TUC noted in an analysis, while bonuses paid to the bankers, insurance brokers and other financial sector employees have reached a record high, the rest of the country struggles with soaring cost of living pressures that are outstripping pay rises. Wealth inequity is built into our economic system and working people pay the price. The rising discontent is currently feeding through into industrial action or threats of industrial action.
So, what should the government’s strategy be? GIMMS Associate Neil Wilson suggests the following :
- Interest rates should be going down, not up, because taxing young people trying to set up home and giving that to rich people with money is completely the wrong approach.
- Instead, we need to understand that taxes are there to stop the private sector from hiring people so the public sector can hire them. If we have inflation, then we are undertaxed for the size of government we have.
- Therefore we reduce the size of government, or we increase taxes on business so they hire fewer people. Employee NI changes should be shifted to Employer’s NI.
- The number of people on out-of-work benefits is entirely in the gift of private sector businesses. All they have to do is offer sufficiently attractive wages and conditions. In other words, learn to compete and stop offering substandard jobs. Rather than out-of-work benefits we should provide a guaranteed living wage job for all, then it would be even clearer that the problem is with the quality of the private sector job offers, not the willingness of the people to work.
- Since the inflation problem is a lack of energy, why are we arguing about money rather than talking about measures to use less energy?
Whilst the temptation is increasingly to focus on domestic issues, we ignore at our peril the global context of the effects of the pandemic and the conflict in Ukraine on world economies, not to mention the climate crisis which seems to have taken a back seat, or rather dropped off the agenda.
It is increasingly clear that there will be severe consequences for countries in the global south. Countries that do not enjoy food and energy sovereignty, are loaded with foreign debt, and who have suffered at the hands of the IMF which imposes tough conditions for bailouts, destroying public infrastructure and privatising public assets.
Countries who, on top of this, are also having to deal not only with the shocking rises in the price of food staples like grain and energy, related to the conflict in Ukraine, but also with the costs associated with western manufactured wars and economic exploitation, and human-caused climate warming.
There is not a week that goes by when those consequences are not laid bare. Those of a rotten economic system which favours the global north.
This week the UN warned that only an immediate scaling up of funds and humanitarian relief could save Somalia from famine.
In March and April, a brutal heatwave struck India and Pakistan which killed at least 90 people and led to wheat crop failures, power outages and forest fires.
This month, more than 110 people have died and millions have been stranded as excessive Monsoon rains devastate India and Bangladesh, adding to the damage already caused by unusually heavy rain which lashed north-eastern India and Bangladesh in March.
In Niger, people are on the other hand, praying for rain, as malnourished children die as the global food crisis worsens years of drought, caused by the climate crisis which has led to increasingly unpredictable patterns of rainfall and longer dry seasons.
And in Chile, working people are becoming desperate as a severe drought which is turning a reservoir into a desert has affected copper output, stoked tensions over water use for lithium and farming, as well as fuelling forest fires. Plans are now being drawn up for water rationing.
In the Congo, peat which stores vast amounts of carbon is under threat from climate-induced longer dry seasons, unsustainable farming practices and the possibility of significant oil deposits being exploited close to peatlands, with government already parcelling out blocks of land and seeking potential investors.
These events come as climate talks in Germany between rich and poor countries over funding compensation to deal with climate change caused by the emissions of richer countries, ended in acrimony as the US and EU fail to agree.
As Congo’s Environment Minister pointed out, ‘It’s time we understood that it is in our common interest to conserve [the peatlands]. Because if [the West] doesn’t help support our conservation work, we shall be obliged to use our own natural resources, because we need money simply to live.’
That goes for all countries faced with similar dilemmas, and we are as far away as we have ever been from developing global solutions.
With Sri Lanka’s Prime Minister warning this week that the country is on the point of economic collapse, it exposes the fundamental exploitative and toxic nature of the economic system. A country that has as the economist Fadhel Kaboub tweeted recently, ‘failed to invest in food and energy sovereignty, raced to the bottom chasing low value added export industries, remittances and tourism. All fueled by debt in foreign currency.’
The climate crisis, combined with the toxic economic system which is driving it, is posing an existential threat to humanity. The natural world and its biodiversity is under threat as never before, and yet despite the promises, we are now going backwards.
As Antonio Guterres, the head of the UN, made clear last week, fossil fuel firms ‘have humanity by the throat’, as the industry and its backers pull in record profits as energy prices soar, and governments give the go-ahead for further oil field development or re-opening coal plants as Germany is proposing to do. Suddenly the appetite for addressing the climate emergency has been supplanted by other immediate concerns, rather than the long-term effects of continuing to burn fossil fuels and use up the world’s finite resources to keep a dying economic system alive.
We have choices. They start with unpicking the lies about how the government spends, so the public understands the scam that has been perpetrated over decades by politicians, orthodox economists, and the media.
Change is inevitable. The question is what sort of change do we actually want for our children and what needs to happen to achieve it? We need an urgent challenge to a toxic system. Learning how money works is fundamental to that quest.
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