State finances are not like a household or a maxed out credit card

 Prue Plumridge patiently explains to a Conservative MP the true nature of Osborneomics and their devastating impact on the UK’s economy and people.

 

Dear Mr Whittingdale

I would like to take up where we left off at Sunday’s hustings on the subject of the national debt/ deficit, since not being a quick witted politician, I was unable to reply in the way I would have liked.  Let’s start with the Tory pledge that they’d balance the books by 2015.  Clearly this has not happened and, not only is the government on course to break this promise with the deficit set to be £75 billion next year, but is also set to borrow £207 billion more than planned. George Osborne’s plans to make more cuts (whilst not saying, unsurprisingly, where these cuts will fall) will take Britain back to 1930s levels of public spending, and that’s without the planned £7 billion of unfunded tax cuts. The effect on our economy and our people don’t bear thinking about.

Now, unlike you and David Cameron, I have not studied economics.  However, I do know that people have been deceived by a lie which compares our State finances to a household budget or a maxed out credit card.  In our ignorance this is the analogy which people can most identify with, but it is simply untrue.  Furthermore Britain was neither bust nor bankrupt – this sadly was used by coalition ministers to justify their ideologically inspired cuts to public expenditure. What was a genuine private debt crisis caused by reckless banks and absolute greed became a supposed sovereign debt crisis in order to justify austerity and the sale of public assets to the private sector.

As the economist David Blanchflower commented about the oft repeated lie about maxed out credit cards ‘Cameron is an economic simpleton who shows no understanding of basic accounting’. Furthermore the idea that future generations will pay for so called Labour government profligacy is yet another of those lies which the coalition has used to deceive the people of this country.    George Osborne’s statement in 2010 that ‘we have taken our country back from the brink of bankruptcy’ and that spending cuts were vital to avoid ending up like Greece was another of those misleading statements. We have full monetary sovereignty i.e. control over our own currency (unlike Greece) and we are the sixth biggest economy in the world whilst Greece the 32nd[1].  When Chuka Umunna asked Lord Turnbull who was testifying to the Treasury Select Committee in October 2010 whether he thought that the UK had been on the brink of bankruptcy he replied quite simply ‘No I don’t.’[2]

As Johann Hari wrote in the Independent ‘If we are bust today, as George Osborne has claimed, then we have almost always been bust. We were bust when we pioneered the Industrial Revolution.  We were bust when we ruled a quarter of the world. We were bust when we beat the Nazis.  We were bust when we built the NHS.’[3]

You pointed out quite rightly that my own party is planning to reduce the deficit and balance the books, albeit more slowly.  I cannot pretend that I approve of such a move but as a member of a democratic party I am entitled to disagree with it. However, my support for Labour is given on the basis that it wants to create a fairer and more socially just society – something the Tories have been working to dismantle over the last five years. It has created myths and lies about the state of our economy in 2010 and pointed the finger at every one other than those who are the real authors of our economic collapse, in order to justify disabling the welfare state, selling off our public assets, not to mention privatising our NHS.

George Osborne in 2010 said ‘reducing the deficit is a necessary precondition for sustained economic growth’.  This is the biggest deception of all. Deficit reduction, book balancing and surpluses simply remove money from the economy and make the situation worse.  Patently you have never studied Keynes or the conditions which led to the Great Depression in the 1920s. The economists Ann Pettifor and Victoria Chick studied data from 1918 to 2009 and concluded that the evidence runs counter to conventional economic wisdom and such policies have not improved the public finances – instead they increase rather than reduce the level of public debt associated with prevailing economic conditions[4]. In terms of people they destroy lives.  Indeed Keynes wrote in 1937 that ‘The boom not the slump, is the right time for austerity at the Treasury’.  Austerity can never be a solution but then this has been an ideological choice by the Tories rather than a necessity. I should point out that on seven occasions in US history when the government balanced the budget it was followed by recession/depression.

Mr Whittingdale – it doesn’t have to be like this.  There are alternative economic models which, over decades, have been airbrushed out of the mainstream in favour of this destructive neoliberal dogma which has brought many people to their knees whilst enriching a few. We are paying now for the dominance of the ideas of Hayek and Friedman which posit that the individual can best determine his needs and that free markets will always find their equilibrium, not to mention trickle down wealth.    Keynes’ ideas obviously spring to mind along with John Kenneth Galbraith and his son James, Wynne Godley, Mary Mellor, Bill Mitchell and Warren Mosler.  The thing seems to be that we have lost sight of the idea that money should be a public resource and not for private gain. The debt based society of the past decades is crushing us, indeed enslaving us.

We should see our monetary system as a public utility which is employed to finance the production and exchange of goods and services, not an opportunity for greedy speculation. It is our monetary system and it should be used to achieve the full potential of society and improve the lives of our citizens.

To finish where I started whilst there are always limits in terms of, for example, environment and resources there can be no such thing as an economic limit due solely to our society being ‘out of money’.  Government deficits do not take away from savings; government revenues are not constrained i.e it does not need to tax or borrow in order to spend – indeed logically government must spend first before it can tax or borrow; our children will get to consume what they produce and it has nothing to do with the deficit; tax is a mechanism to balance budgets and distribute wealth more fairly; and finally as the issuer of its own currency governments cannot be forced to go bankrupt[5]. The push for privatisation of public sector services and decimation of our social security system, on the basis that we can’t afford it, has been ideological and simply a way to destroy the foundations of a fair society and generate more profits for the private sector, as you most certainly know.

The emphasis on the national debt, deficit reduction and book balancing, hides the real issues that should be of concern to all – the trillions of pounds of private debt and the worst trade balance in history. But I notice Mr Osborne says nothing of that – he is relying on debt based consumption and a housing bubble to keep the economy afloat.

Yours sincerely

 

[1] Summer of Unrest: The Debt Delusion Medhi Hasan

[2] Summer of Unrest: The Debt Delusion Medhi Hasan

[3] The Paradox of Thrift: Johann Hari

[4] The Economic Consequences of Mr Osborne: Ann Pettifor and Victoria Chick

[5] The Seven Deadly Innocent Frauds: Warren Mosler

14 thoughts on “State finances are not like a household or a maxed out credit card

  1. Who listens though? If this weren’t a nation of backwards tiny-minded economic illiterates who are conceited about all three of those attributes the Tories couldn’t get the time of day. As it is, they run things. Whatever the solution is, then, it’s not political.

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    • FDR was political Bill .. but I agree the popular paradigm has to shift first. Let’s face it, there are vested interests who no more believe in the mainstream economic mythologies, than you and I do. Politicians need to feel that there will be support to challenge the financial-commercial nexus because, as we have seen, the attacks on a mildly left of centre LP are devious and intense.

      Like

    • “Who listens though? If this weren’t a nation of backwards tiny-minded economic illiterates who are conceited about all three of those attributes the Tories couldn’t get the time of day. As it is, they run things. Whatever the solution is, then, it’s not political.”

      What a load of self hating racism you have spouted. furthermore just as the problem is political – the solution is political.

      Like

  2. Reblogged this on ianlemarsh and commented:
    This is like a mirror to Australia. Pay attention Mr. Hockey, Mr. Abbott. We know what you are doing, just can’t figure out why.

    Prue Plumridge patiently explains to a Conservative MP the true nature of Osborneomics and their devastating impact on the UK’s economy and people.

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  3. Pingback: Abbott and Hockey Running Scared – Written by JOHN KELLY | winstonclose

  4. LABOUR IS NOT OFFERING ME A STATE PENSION
    WORK TIL YOU DIE OR STARVE IF YOU CAN’T WORK IN OLD AGE

    MANY LOW WAGED HAVE NO OTHER PENSION PROVISION IN LIFE

    The flat rate pension from 2016 will leave huge numbers of men and women with
    NIL STATE PENSION FOR LIFE.
    https://you.38degrees.org.uk/petitions/state-pension-at-60-now

    Labour can use Statutory Instruments, I believe, to stop the Bedroom Tax within 5 weeks of election.

    Why cannot Labour also use an SI to take out all the losses that are in the Pension Bill (flat rate state pension), doing a 28 day notice as soon after 8 May as possible?

    I ask Labour:

    REVERSE RISE IN RETIREMENT AGE done in 2013 (women lost payout from 60 to 66,
    men from 65 to 66). Younger women are seeing 67 and 68 as state pension payout.

    END MERGING OF SERPs AND NATIONAL INSURANCE RECORD
    to calculate state pension amount (in the Pension Bill 2014 – flat rate pension)
    (This means £38 per week state pension after 45 years work,
    is the lowest forecast I’ve come across.
    In my case, 30 years SERPs opt out and 30 years NI record equals nil state pension for life).

    PAY HOUSEWIFE’S STATE PENSION – WIDOW – DIVORCEE

    PAY THE CATEGORY D PENSION TO THOSE TURNING 80 NEXT YEAR

    END RISE FROM 1 YEAR NI RECORD TO 10 YEARS NI RECORD TO GET ANY STATE PENSION AT ALL (within Pension Bill – flat rate pension).

    See more detail at end of my petition at:
    https://you.38degrees.org.uk/petitions/state-pension-at-60-now

    This will hit Labour on and from 6 April 2016, with the first about – quarter of a million retiring.

    There is no single tier pension.
    People will be getting different state pension amounts for decades.

    The SERPs opt out will hit defined benefit works pensions and private pensions also in 2016, as new pensioners.

    The Tories are leaving Labour one heck of a poisoned chalice.

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  5. “Deficit reduction, book balancing and surpluses simply remove money from the economy and make the situation worse.”

    If you mean that there is a reduction in aggregate demand, then I agree.

    However, the fall in aggregate demand brought about by ‘deficit reduction’ was supposed to be offset by a mixture of ‘supply side’ measures, monetary policy and the new voodoo economics, the Barro/Ricardo equivalence proposition.

    When these policies ‘did not work’, new policies were introduced?

    “Instead of trying to reduce borrowing any further or aiming for a balanced budget, as it originally promised, the British government has now accepted that deficits will keep rising in absolute terms and will still be worth 6% of GDP by the next election in 2015. That would leave Britain with by far the highest deficit ratio among the major economies after five years of unprecedented austerity.”
    http://blogs.reuters.com/anatole-kaletsky/2013/03/21/even-britain-has-now-abandoned-austerity/

    He also had a little luck?
    “One economist, Alan Clarke at Scotiabank, says the compensation payments have been more successful at stimulating the U.K. economy than quantitative easing. U.K. lenders have already paid £11.5 billion ($18.7 billion) to millions of customers, and have set aside another £7.3 billion for future payments.
    But the payments are not just creating one-off windfalls: the PPI industry is also creating much-needed employment.
    As we report over on WSJ.com, claims have been coming in at such a clip that it’s created tens of thousands of new jobs to handle them.”
    http://blogs.wsj.com/moneybeat/2013/10/04/how-a-banking-scandal-is-bolstering-britains-economy/

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  6. G.O. austerity package was not expected to slow down/reduce the increase in GDP. He was hoping that monetary policy, supply side measures and the new voodoo economics, the ‘Barro/Ricardo equivalence, would lead to an increase in private sector demand.

    When his policy measures ‘did not work’. He ‘changed tack’. He increased public sector gross investment. {A Keynesian stimulus?}.
    In 2012-13 public sector gross investment was £17.78b. In 2013-4 public sector gross investment was £46.1b – an 159% increase.
    “Even Britain has now abandoned austerity
    And while Osborne will never publicly admit this, the big surprise of his budget is its implicit acceptance of this Keynesian view.
    Instead of trying to reduce borrowing any further or aiming for a balanced budget, as it originally promised, the British government has now accepted that deficits will keep rising in absolute terms and will still be worth 6% of GDP by the next election in 2015.”
    http://blogs.reuters.com/anatole-kaletsky/2013/03/21/even-britain-has-now-abandoned-austerity/

    He also had a little luck?“
    “One economist, Alan Clarke at Scotiabank, says the compensation payments have been more successful at stimulating the U.K. economy than quantitative easing. U.K. lenders have already paid £11.5 billion ($18.7 billion) to millions of customers, and have set aside another £7.3 billion for future payments.
    But the payments are not just creating one-off windfalls: the PPI industry is also creating much-needed employment.
    As we report over on WSJ.com, claims have been coming in at such a clip that it’s created tens of thousands of new jobs to handle them.”
    http://blogs.wsj.com/moneybeat/2013/10/04/how-a-banking-scandal-is-bolstering-britains-economy/

    Plus a government generated boost to the housing market?

    Like

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