By Prue Plumridge

Yesterday in Parliament, we witnessed a shameful spectacle when only 48 Labour MPs voted against the Welfare Bill.  The extreme centre, as Tariq Ali referred to it in his book ‘The Extreme Centre: A Warning’, once again failed to vote for the well-being of the citizens of this country.   Not content with abstaining over Workfare in the last government, a majority of Labour MPs did so again.  Neoliberalism rules in the Labour party in all but those very principled individuals who chose to put their heads up against the flow and say no.

We are told time and time again, that we can no longer afford our NHS or our social security system.  We are told that we must reign in expenditure, reduce the deficit, balance the books and even achieve surplus.  Our politicians like to remind us regularly that we cannot not leave the debt to future generations.  Deficit has become the bogeyman of our times and austerity its friend.

We accept this because we have an incomplete understanding of how our economy and money systems work.  Our politicians (through ignorance and design) use the analogy of the household budget to explain why we can no longer afford public sector services and our social security system.  Notice I make a distinction between the terms social security and the oft used word ‘welfare’ which has become so tainted in recent times.  The connotation of welfare to mean skivers and scroungers has been cleverly used by politicians and the media alike to divide people who either don’t know or have forgotten its origins. Along with the mantra – there is no money – it is used to justify the dismantlement of the safety net for when we are at our most vulnerable and worse still the selling off of every aspect of our publicly provided services to the private sector.

It seems to me that if we are to challenge the view being pedalled by our politicians and many mainstream economists that we can’t afford our public services, and create a decent society for all we need to go back to basics and gain an understanding of how our economy really works. Not the household budget model which serves as a useful means to deceive people who, quite understandably, identify with Micawber the Dickens character in David Copperfield, who said:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

We are always told by politicians that tax funds our expenditure – meaning that our expenditure on things like infrastructure, the NHS, and Social Security is limited by that income.  We need to start dispelling these pernicious myths which are rooted in our ‘gold standard’ past which demanded that you had enough gold to back your national currency.  This arrangement was abandoned as far back as 1971 and yet we are still running our economy and money system as if it were still in place.

Last year, Dr Stephanie Kelton gave a presentation to students in Kansas City in which she challenged these ideas.  She used the Monopoly game analogy to explain where money comes from and how the system really works and pointed out that balancing budgets will only suppress growth because it removes money from the public sector’s balance sheet which in turn acts as a drain on the real economy.  By which she means the labour, equipment and other resources that produce the goods and services we all rely on.  Spending (as she says quite clearly) equals income to someone. She also explains that we are not going to leave a huge debt to future generations, as is being claimed by those politicians who either don’t understand or wilfully misunderstand the reality. The real issue is not affordability but how we ensure future economic prosperity through improving productivity.

This is what she had to say:

 ‘When you play the game monopoly, you open up the rules, set up the cards and ask who is going to be the banker. So how does the game start? Why doesn’t the banker collect taxes to get the game going? Because no-one has any money yet.  So what does the bank do first?  It has to issue the money before it can collect anything back or the game can’t even begin.  So the spending, the issuing of currency has to come first.  And then you read the instructions and it says the bank collects taxes, fines, loans and interest and the bank never goes broke. If the bank runs out of money the bank may issue as much as needed by writing on any ordinary paper.  It’s exactly what it means to be the monopolist. That’s why they call it Monopoly.  Money has to be spent before it can be collected back.

So you start playing the game and you move you pieces around the board and you land on Community Chest or Chance, you draw your card and oh oh pipes burst, pay $50 – there goes a leakage. You keep on playing, you land on another one and oh oh tax is due pay $100. This game will end very quickly if there isn’t a replacement for the money that is leaking out – so every time you pass GO you collect $200. Why does the monopoly game tell the banker to put in $200 each time you go around? To keep the game going. To let the game continue.  You can save in Monopoly in the form of real estate investment. Every time you buy a hotel or a house you pay the banker some money and it’s out of the game – it’s leaked out.  Every time you pay taxes it’s money that has leaked out of the system. The banker has to spend out more than it collects otherwise the game will quickly come to an end. Which is to say that if the banker is not deficit spending the game will end much sooner.”

Dr Kelton goes on to point out that even Alan Greenspan, former Chairman of the Federal Reserve knows perfectly well that a government cannot go bankrupt.  He made this quite clear when he said under oath as chairman of the Federal Reserve ‘a government cannot become insolvent with respect to obligations in its own currency.  A fiat money system like the ones we have today can produce claims without limit”.  When faced with a question posed by Congressman Paul Ryan on social security (although as Dr Kelton says it could refer to defence spending, education spending, infrastructure spending or student debt), as to whether personal retirement accounts would help to achieve State solvency  (whilst also disingenuously suggesting that social security was going broke and that it would be a good time to move towards personal savings account or in more plain language privatisation), Alan Greenspan replied that there was nothing unsustainable about social security because there is nothing to prevent the federal government from creating as much money as it wants and paying it to someone.  However, the real question, he said was, will the real assets be there in the future that those incomes can be employed to purchase? There are, we all know, demographic changes taking place – a shrinking work force and a growing population of retiring baby boomers which it is claimed is the reason why we need reform and privatisation.  It is, however, a red herring and the real issue is that with fewer working people producing the goods or services how will we ensure that there are enough for future generations to purchase.  If there are not, then competition for a smaller pool of output would then lead to inflation.

Therefore the questions we should be asking are not whether there is enough money but whether we are we making the necessary investments in education and technology or indeed will there be enough resources to ensure that we can continue to be productive particularly in respect to the finite nature of our planet’s resources and how should we manage it? To repeat, the debate can never be about affordability. These are perhaps the real questions for us as a society.  What sort of world do we want to live in? One where greed and inequality increases and poor people are dehumanised and impoverished?  Or one which is fair and just and treats citizens with respect and dignity whilst also recognising some of the really serious issues we face about the future viability of our planet home?

It is clear from recent announcements in the House of Lords and by government ministers that we are being prepared for the eventual complete privatisation of the NHS and our social security system, both to be replaced by insurance schemes.  Not because they have to but because of erroneous ideology which suits the politicians and their corporate friends.

The trouble is, as Mark Twain puts it ‘It is easier to fool people than to convince them that they have been fooled” and it is time to wake up to the deceit which is being practised upon us by those who should be leaders and not exploiters. We have an obligation to ensure that people understand what is happening and why it is happening.  We need to educate ourselves and pass it on.  Otherwise the lie will be perpetuated remorselessly until there are no options left.

References:

http://www.theguardian.com/politics/2015/feb/20/tariq-ali-interview-renationalise-the-railways

Tariq Ali: The Extreme Centre: A Warning

Dr Stephanie Kelton Angry Birds https://www.youtube.com/watch?v=d57M6ATPZ