Failed By The State – The Struggle in the Shadow of Grenfell (Part 1)

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This is a ‘must watch’.  Explains the mechanism seen across London and other big cities of social cleansing. It’s the same one as is being used on the NHS, education, Fire service, police etc…. run them down, privatise and sell off the land.  It’s the dispossession of high value land from low income people.  It’s primary accumulation.  It’s ‘Disaster Capitalism’.  It’s redistributing wealth upwards and offshore.

It is the nature of Crony Capitalism and it is lethal.

Published on Nov 16, 2017

redfish presents its debut: An exclusive grassroots report into how austerity and gentrification caused the Grenfell tragedy, one of the deadliest fires in recent UK history.
Part 2 – Thursday 23th Nov Part 3 – Thursday 30th Nov #redfishstream

Is world-leading NHS healthcare an affordable proposition?

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Re-posted with kind permission from Progressive Pulse 14th October 2014

Authors:

David Laws, Consultant Anaesthetist, City Hospitals Sunderland NHS Foundation Trust, Sunderland, Tyne & Wear, SR4 7TP

Professor Charles S. Adams, Department of Physics, Durham University, Durham, DH1 3LE

Introduction:

The unquestioned assertion that a highly developed currency-issuing nation cannot afford high quality healthcare [1] is based upon a set of inter-related and almost universally-held false assumptions:
  • Money is in limited supply (as there is no ‘magic money tree’).
  • Taxes fund government spending.
  • Private banks lend out pre-existing savings.
  • NHS spending is a burden on the economy rather than a boost to the economy.

 

1) Money is created ‘out of nothing’ on bank computers

In 1973 the Bretton-Woods international exchange rate system, where currencies were ultimately pegged to the price of gold, was formally ended. Since that time we have used an international fiat monetary system where the value of each currency is determined by the workings of international financial markets. Fiat (Latin: ‘let it be made’) money is created from nothing on the basis of a promise – a promise to deliver goods or services in the future. Only if we believe in these promises and the systems that support them, does money have value.

The following description of the monetary system and its components is highly schematic to aid elucidation of the underlying principles. Money is created either when the government spends or when a bank makes a loan.[2] We can think of government spending and bank loans as the beginning of two interconnected money circuits. The government and bank circuits form the duopoly of money creation, rather like the pulmonary and systemic circulations of the cardiovascular system only in this case the circuits work in parallel. Both circuits are supported by the central bank which creates a unique type of money held within the bank known as electronic reserves (Figure 1). To extend the analogy of the cardiovascular system, the central bank is akin to the heart, individual bank accounts would be equivalent to the capillaries and the wider economy would be the working cells of the body.

The two monetary circuits commingle through banking transactions so bank money and government money become indistinguishable to bank account users. After money is created it flows through the economy and eventually returns to the issuer.

 

Figure 1: Schematic diagram of the monetary system of a sovereign nation. Bank account users cannot distinguish the origin of their deposits.
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2) The government money circuit – taxation removes money from the system

In the government circuit, money is spent into the economy and is effectively cancelled when it returns to the government via the payment of taxes. The collection of taxes is not a prerequisite for government spending as many people assume, but exists at the end of the government money cycle when taxes removed prevent too much money being created. Taxation mainly helps to control inflation and alter peoples’ behaviour in a way that should be beneficial to all. The net result of deficit spending is to leave savings in the form of Government Bonds in the hands of the private sector (Figure 2).

Figure 2: The government spend and tax circuit with a deficit. The difference between spend and tax equals private sector saving and is known as the deficit.

 

Conversely a government surplus (where taxation exceeds spending) would destroy these savings. The superficially sensible idea of running a balanced government budget simply prevents saving in the private sector. This is illustrated in models a) and b) within Figure 3. In a) the government injects money via a fiscal stimulus in year zero. Taxation means that over time all this money is returned. In b) the public choose to save a fraction of their income which leads to the deficit. Savings simply delay the return of money in the circuit. In other words, the private sector is only able to save money because the government supports this activity by running a deficit. The government circuit is leaky by design. For example, people are encouraged through tax breaks to save for their future (e.g. pensions & ISAs). Therefore, the national debt is not what we currently owe but what we currently own.

Figure 3: (a) model which shows that after government spend (fiscal stimulus) if people do not save then all the money comes back as tax, whereas if people save this leads to the deficit (b).

 

3) The private bank money circuit – banks create credit and don’t lend out savings

Most of our money is created in the form of bank loans (credit). When a loan agreement is signed the bank creates a new bank deposit to the value of the loan in the borrower’s bank account. Money is returned to the bank by the repayment of the loan plus interest (Figure 4). Similar to government spending, bank lending influences private sector behaviour but the allocation of money creation is not democratically controlled. The primary purpose of bank lending is to enable individuals and businesses to function and to generate profits for bank shareholders, both over the short and long-term.

Figure 4: The bank circuit where loans concurrently create bank customer deposits and private debt leading to bank profits.

 

Banks must have a licence issued by the government to create money in this manner and aspects of their activities are regulated. However there are no formal economic, social or environmental responsibilities associated with the creation and allocation of bank credit despite the significant influence these decisions have over our lives. Bank credit creation is predominantly distributed towards land (property) and financial asset speculation which dwarfs their support for entrepreneurship. The majority of UK small businesses are actually self-financing.[3]

As the proportion of unproductive private debt increases in an economy a correspondingly increasing proportion of economic output is directed towards servicing this interest-bearing debt. Consequently the private bank money circuit tends to be inherently destabilizing as it drives assets towards the already wealthy making the economy increasingly fragile.

What are the outcomes when the two circuits combine?

If all the money was returned to the issuers the quantity of money would go back to zero (the balanced budget illustrated in Figure 3a). In practice the rate of new money creation is usually higher than the rate of money cancellation and the total amount of money in the economy grows over time to support economic growth (Figure 5). Ideally growth in the money supply should match the growth in economic activity, such that prices remain roughly stable and we maintain confidence in the value of our currency unit. Control of the rate of money creation and destruction in the government and banking circuits are known fiscal and monetary policy, respectively.

Figure 5: UK Money (M4) Supply 1987 – 2017. Source: Bank of England.

 

The money supply increased significantly in the decades prior to the Global Financial Crisis (circa. 2007) primarily through bank credit expansion. In contrast, between 2009 and 2014 net credit was negative.[3] As bank credit creation wavered from 2008 onwards, government deficits rose to prevent a deflationary depression. The actual sector balance data for the UK is shown in Figure 6 and there is similarity with the simple model we presented in Figure 3. Note that the rest of the world is a net saver of UK money (these savings have to be spent in the UK ultimately). Note also that when these three sectors combine, the balance is near zero as this is nothing more than an accounting identity.

Figure 6: UK sectoral balances data from the ONS. The inverse correlation between Private and Public sectoral balances. Private sector savings mirror the public sector deficit as illustrated by the model in Figure 3.

 

Why two circuits?

Why do we need this duopoly of both a government circuit and a banking circuit? Why do we need both fiscal and monetary policy? As money is a collective good, should we transfer all money creation powers to government and demote private banks to the role of intermediaries as some propose? Or could we hand over all money creation to private banks as free-market fundamentalists would prefer?

Put simply, the commercial bank circuit serves private needs while the government circuit serves collective needs. The bank circuit exists to serve individuals and ‘capitalism’, while the government circuit exists to deliver on democratically controlled promises.

Economists often call our collective interests public goods. The failure of the private interest bank circuit to provide public goods is easy to understand by exploring healthcare. The market solution is to cater for the patient offering to pay the most. Even worse, the market may deliberately create a scarcity in order to charge a higher price. A market cannot operate effectively in matters of life and death. Kenneth Arrow a highly-respected pioneer of neoclassical economics and winner of the Nobel Prize in Economics in 1972 wrote ‘the laissez-faire solution for medicine is intolerable’.[4] In situations where competition is not viable, where demand is unlimited like health, and supply delivers societal benefits, then collective democratic control is the optimal solution. The House of Lords Select Committee on the Long-term Sustainability of the NHS report in April 2017 reaffirmed that the principal method of funding the NHS should be via government spending.[5]

What has gone wrong?

The art of economic management is to balance fiscal and monetary policy. An over dependence of one or other is doomed in the long term. The core failure over recent history lies in the inability of politicians and central bankers to regulate the banks and to use fiscal policy appropriately. There now exists UK Department of Health data to support the assertion that government austerity may be the primary underlying cause for the deterioration of health inequality measures in England.[6]

‘In her present condition, Great Britain resembles one those unwholesome bodies in which some of the vital parts are overgrown…and through which an unnatural proportion of the industry and commerce of the country has been forced to circulate, (which) is very likely to bring on the most dangerous disorder upon the whole body politick’. When one considers the unhealthy dominance of the financial sector within the UK and global economy today, it may be surprising to discover that Adam Smith wrote these prescient words in the Wealth of Nations over two hundred and forty years ago.[7]

In a similar vein, using central bank monetary policy alone to rescue the global economy has been misguided. In 1969, the world-famous economist, Milton Friedman said ‘The available evidence . . . casts grave doubts on the possibility of producing any fine adjustments in economic activity by fine adjustments in monetary policy’.[8] More recently, Mark Carney, the Governor of the Bank of England, reinforced this point in his ‘The Spectre of Monetarism’ speech published in December 2016 where he stresses that monetary policy needs to be in ‘better balance with fiscal and structural policies’. [9] The sudden change to no money growth after 2010 in Figure 5 is evidence of the complete failings of recent monetary and fiscal policy.

 

4) NHS spending boosts the wider economy in excess of the money spent

Fiscal policy is very powerful but needs to be carefully managed. The NHS was conceived and built in times of high national debt. This could occur because creation of money is not an inherent constraint. Thanks to the government spend and tax circuit, the NHS nurse, doctor, physiotherapist or pharmacist need not cost anything as long as (they serve a useful purpose and) the money spent on them is also spent. In fact, it is more likely that society will profit through ‘crowding in’ more economic activity through NHS employees’ subsequent spending and a healthier public.

It is estimated that the fiscal multiplier for UK healthcare spending currently lies between 2.5 and 6.1. This means for every £1 spent on the NHS approximately £4 of economic activity results.[10] If you had a cash-back card that gave you £4 back for every £1 spent, you would not cut back on your spending! Only when we reach a position of over supply when NHS staff wait forlornly for patients to present do we reach a point where the multiplier falls to below one. We are, at present, an unsafe distance from a workforce oversupply scenario.

As a sovereign nation, the UK can always afford high quality universal NHS healthcare. Money is essentially an accounting system designed to facilitate our collective activities and development. Fiscal policy needs to be activated to meet the needs of our society as there is now observable failure of the prevailing reliance on monetary policy and preservation of rent-seeking private interests. It is evidently wrong to assert that healthcare access and quality is limited by the availability of money. The constraint, in truth, has never been the potential availability of money, but the desire to resource the NHS appropriately. In the words of John Maynard Keynes, ‘Anything we can actually do we can afford’. [11]

References

[1] Department of Health annual report and accounts 2016 to 2017 https://www.gov.uk/government/publications/department-of-health-annual-report-and-accounts-2016-to-2017 (accessed August 2017)

[2] Money Creation in the Modern Economy. Bank of England Spring Bulletin 2014

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf (accessed August 2017)

[3] Bank of England interactive database

http://www.bankofengland.co.uk/boeapps/iadb/newintermed.asp (accessed August 2017)

[4] Uncertainty and the Welfare economics of medical care. Kenneth J. Arrow. The American Economic Review December 1963. http://www.who.int/bulletin/volumes/82/2/PHCBP.pdf(accessed August 2017)

[5] House of Lords Select Committee on the Long-term Sustainability of the NHS. The Long-term Sustainability of the NHS and Adult Social Care Report Published 5th April 2017. p44. https://publications.parliament.uk/pa/ld201617/ldselect/ldnhssus/151/151.pdf (accessed August 2017)

[6] David Buck, King’s Fund  https://www.kingsfund.org.uk/blog/2017/08/reducing-inequalities-health-towards-brave-old-world (accessed August 2017)

[7] Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. p468-9. Edited by S. M. Soares. MetaLibri Digital Library, 29th May 2007 (accessed August 2017)

[8] Milton Friedman and Walter W. Heller, Monetary vs. Fiscal Policy, W. W. Norton and Company Inc., New York 1969.

[9] ‘The Spectre of Monetarism’. Speech by The Governor of the Bank of England. December 2016. http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech946.pdf (accessed August 2017)

[10] Does investment in the health sector promote or inhibit economic growth? Aaron Reeves et al. Globalization and Health 2013. https://doi.org/10.1186/1744-8603-9-43

[11] The Collected Writings of John Maynard Keynes. Vol. 27 p270. Activities 1940–1946: Shaping the Post- War World: Employment and Commodities ISBN 978-1-107-65156-2

We can’t Afford not to Invest in a Better Society.

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How we Afford a Better Society – and How to Recognise it

When someone asks you , “How can we afford to spend more on our public services”, the simple answer is, “We can’t afford not to.”

Every day we see the effects of austerity policies, from boarded-up, depressing High Streets, poverty, and hungry children to decimated public services. We can’t go on like this.

Austerity was always a political ploy, unnecessary, and intentionally cruel, and it is a policy which propels us  further in a downward gloomy spiral. No one really benefits, no one is really happy in an increasingly divided society, where the only solution is to blame one another, where in reality we are all missing out, from what society could be.

And the only way out of this is to invest in our society towards better lives for us all.

We are not short of labour, resources or land in order to invest in a society in which we can thrive, where people can live fulfilled lives. But people are without jobs, land and property is underused, held back by those in power, because it suits the Tory, capitalist philosophy, where it creates division, competition, greed – and ultimately war and hate too. And rich pickings for the very few.

We just need the political will to rebuild, to build a better society.

The government has the ability – and responsibility – to release money into the economy right now to get our economy moving efficiently again.

As a sovereign state, the UK government controls its own currency, and can release as much as it needs, and so it should. It’s not like a household budget waiting for payday. I imagine the flow of currency like running a bath, you can run as much as you need, then turn off the tap when you’ve enough. And rather like a bath with an overflow, excess funds can be drawn off – and that’s where taxation comes in, preventing inflation, but in a fair, balanced way so that everyone is benefitting from the investment in the new and better society, and everyone is that bit happier.

Screenshot 2017-10-15 14.50.49.png

The state’s currency is indeed the People’s money, but not ‘taxpayer’s’ because we don’t need to pay tax to use it. It’s there already. Money can be created by a computer keyboard whenever the government chooses to. Tax is not needed to pay for resources, because tax results from previous government spending, and is a way of ensuring a fair distribution.

Screenshot 2017-10-15 14.54.36

When adequate money is circulating in the economy it doesn’t stay hidden away. People spend, and so it means more jobs, and so what comes around, is shared around. Like cycles in nature, water or carbon cycles, money circulates as it makes things happen. In a successful economy, no person or place is left behind. Poverty is unacceptable, and it is avoidable.

A better society is one which puts people first, is sustainable, where every person can reach their potential, to learn, to enjoy leisure time, to enjoy good health and a good home.

We can envisage a society where everyone is caring for one another, everyone can contribute and participate, rather than blaming one another for the ills of a society caused by a flawed economy, backed only by the myth that funds are non existent. And this vision can be realised by a Labour government, determined to ensure an economy which really works for the many, not the few.

This was realised by the 1945 Labour government after the war, when despite the ravages of war, and rationing, there was investment in people, providing an NHS, homes for all and the welfare state, providing a safety net for all of us in times of misfortune. It was possible then because people came together with a strong will to build a better society. The people had seen the effects of divided people, greed, and mistrust. People came together by a united will for peace. And it worked. A whole generation benefitted from opportunities never seen before in their families.

The right wing media frequently use a Shock Doctrine to keep people fearful and divided. Deprivation and fear can mean people look to blame each other rather than see it is caused by the flawed and unjust system and so hold back from change . This is why scare tactics are used by the wealthy establishment, reinforced by the right wing media who repeat the same adages so often they believe them to be true.

But as we have seen, out of adversity, out of fear and desperation, comes a determination to change society for the better for us all. We cannot afford to carry on with an economy which is leaving people homeless, dying on our streets, leaving children hungry. We cannot afford an economy which benefits the few, and not the many.

 

At Labour Party Conference 2017, Naomi Klein said:

“Moments of crisis do not have to go the Shock Doctrine route – they do not need to become opportunities for the already obscenely wealthy to grab still more.

They can also go the opposite way.

They can be moments when we find our best selves….. when we locate reserves of strength and focus we never knew we had.

We see it at the grassroots level every time disaster strikes.

We all witnessed it in the aftermath of the Grenfell Tower catastrophe.”

When we witness the potential of humanity, of hope and determination, we know we can achieve a better society.  We can afford a better society, and to make better use resources at our disposal.

There is so much potential in the people of Britain, and of the wider world.

We can’t afford not to use it. We can’t afford to waste any more lives.

Can we please drop the nonsense of ‘tax payer’s money’?

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Can we please drop the nonsense of ‘tax payer’s money’?  The phrase is just political advertising, intended to manipulate us in to accepting cuts and constraints which are not good for us or the economy.   (Christopher Bacon explains why it’s a nonsense in his article ‘The Myth of Tax Payer’s money’ which is copied below.)

However, like all successful advertising slogans, the phrase ‘tax-payer’s money’ invokes what psychologists call a schema…. a whole body of emotions, experiences and knowledge which mediate our response.

Hence, ‘Tax payer’s money’ is intended to create a direct link between government spending and the individual.  You are invited to visualise your hard-earned pennies being frittered away unwisely ……. which is hugely convenient for a politician intent on running down public services, so that they can be privatised.  Also implicit in the schema is the threat that if the government spends more, you’ll have to pay out, depleting even more of your income.

And like so much of neoliberal-speak, it is contaminated by deliberately confusing government spending with household spending.  The phrase ‘tax-payer’s money’ comes from the same stable as ‘maxing out the credit card’ or ‘mending the roof when the sun is shining’. It is bunkum.  Government is not like a household.

And of course, you know that really, when you actually think about it …. Government spending is nothing like our own.  But as Drew Weston wrote in ‘The Political Brain:  The Role of Emotion in Deciding the Fate of the Nation’, …..‘the nature of political campaigns are where “rational minds collide with irrational thinking”

Drawing from the fields of psychology and cognitive neuroscience, Weston, a clinical psychologist and political strategist, demonstrated the extent to which candidates’ speeches and political ads, are emotionally laden with words and images designed to provoke strong feelings…. And by re-writing the actual speeches using alternative wording, he was able to illicit a very different set of responses.

Weston explains that these messages activate networks in the brain and become the avenues down which true or false political messages travel, connecting to the unconscious emotions of the voter in a nano-second and involuntarily triggering us to react emotionally and without ‘thinking’.

So let’s keep ‘thinking’ and not allow the Right to infect our minds with their manipulative false analogies….  and can we please drop the nonsense of ‘tax payer’s money’.

 

The Myth of tax payer money Christopher Bacon

We are told, time and time again, that the government should spend taxpayer money wisely, efficiently, and sustainably.  Often these pronouncements are followed by promises to use taxpayer money well by cutting government spending and making efficiency improvements.  There is an assumption behind these statements that is utterly inaccurate and dishonest, however.  Namely, that there is such a thing as “taxpayer money.”

Not only is there no such thing as taxpayer money, it is not the case – ipso facto – that the government spends taxpayer money.  To see how this is so, assume that taxpayer money exists and assume that the government spends it.  As we shall see, these assumptions actually lead to a paradox.

In this world, where the government spends taxpayer money, the following situation holds. The government invokes a tax on the population – say, an income tax.  This income tax takes money from the people who qualify and adds it to the Treasury account.  The Treasury, then, takes that money and spends it on whatever the government wants to buy: a new hospital, school, submarine, or whatever.

Where does this money come from, assuming God does not randomly drop it from the sky?  Well, it is “taxpayer” money.  So the money, presumably, belongs to the taxpayers – so it must come from them (i.e. the taxpayers must issue/print it).  Well, that is all well and good, but it does not represent this world.  Taxpayers, in the UK, do not print pound sterling. That would, of course, be a criminal offense.

In order to tax someone, there must be something there to tax.  Since taxpayers do not print their own money, there is nothing there to tax.  And in order for the government to spend, the government must first tax.  But since there is nothing there to tax, the government will never collect tax and so will never spend.

Clearly, this description is not one of our world.  In this world, the government does spend, and taxpayers do pay their taxes.  Something has to give – our initial assumptions must be wrong:  there is no such thing as taxpayer money and/or governments do not require taxes to spend.

If we jettison the second assumption, then it turns out that the government must spend before it collects taxes.  This is because if it does not spend, then there will be nothing to collect – remember, taxpayers do not print their own money and it does not magically fall from the sky.  Spending precedes taxation, by necessity.  Now that we can see the money in circulation is government money – money issued by the government – it follows that taxpayers do not own it; so the first assumption is jettisoned.  Therefore, the notion “taxpayer money” ceases to have any content.