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

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 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

Why do politicians tell us Debt/Deficit myths which they must know to be untrue?

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The New Economic Perspectives’ video clip on the Government budget, Deficits and Debt presented below (produced for educational purposes), debunks the myths that politicians tell their populations to justify ‘austerity’.  In the case of the clip, it starts with 3 full minutes of American politicians misinforming the electorate.  An identical montage aimed at the UK electorate could undoubtably just feature George Osborne’s utterances from his forthcoming Autumn statement scheduled for this Thursday (5th December 2013).

However, the reality is that all economists know that the deficit and debt mythologies are not true and ‘have long known that the idea of balancing budgets over the cycle is a bit like a fairy story we tell to frighten the kids’.  Economists, and Central bankers like Mervyn King, Ben Bernanke, Alan Greenspan, all know that:

The UK government can never ‘run out’ of money;

The UK government can never be forced to default;

The UK government can never be forced to miss a payment;

The UK government is never subject to the whim of ‘bond vigilantes’.

In fact, the St Louis Federal Reserve, from the heart of Western capitalism in the US confirms the same for the US dollar (and any other nation that creates its own currency) :

‘As sole manufacturers of dollars whose debt is denominated in the dollar, the US government can never become insolvent ie. unable to pay its bills.  In this sense, the government is not dependent on credit markets to remain operational.  Moreover, there will always be a market for US government debt at home because the US government has the only means of creating risk-free dollar-denominated assets.’

Paul Samuelson, ‘father of modern economics’ and Nobel Prize winner, suggested the reason for perpetuating the mythologies in a 1995 interview:

“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say ‘uh, oh what you have done’ and James Buchanan argues in those terms. I have to say that I see merit in that view.”

It may be that politicians fear the ‘anarchic’ demands of the electorate were the public to understand that the UK economy is not like a household and can never be bankrupt.  However, these distortions of reality have been carried to a new pitch by George Osborne and the Coalition government:

The scale of the Coalition government’s intended austerity measures are on a scale never seen in modern Britain. What is planned here will dwarf anything that was undertaken by Thatcher in the 1980s. There is already massive unemployment in the public sector….Massive unemployment and lower wages mean lower tax receipts, and even bigger budget deficits and debt loads…It is now clear that the austerity policy in the UK is not a matter of economic necessity but of political choice… It is obvious that the cuts of this scale are about much more than just deficit reduction… The cuts are part of an agenda to transfer services from the public sector to the private sector. The pretence of ‘there is no alternative’ is a means for the Conservative project to radically transform the state.

http://www.globalresearch.ca/uk-economy-falls-into-double-dip-recession/5313842

It would be just as well to remember this week, when listening to George Osborne and Danny Alexander, that Keynes said:

’Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.’

 

New Economic Perspectives on the Government Budget, Deficits, and Debt

Published on Nov 28, 2013

The video clip features the following speakers, in order of appearance:

L. RANDALL WRAY
Professor, Economics, University of Missouri-Kansas City
Senior Scholar, Levy Economics Institute
Author, Understanding Modern Money, Modern Money Theory
http://www.economonitor.com/lrwray/

STEPHANIE KELTON
Professor, Economics, and Chair of the Department of Economics, University of Missouri-Kansas City
http://stephaniekelton.com/

WARREN MOSLER
President, financial services firm Valance Co. Inc.
Author, Soft Currency Economics, The Seven Deadly Innocent Frauds of Economic Policy
http://moslereconomics.com/

For More Information:

University of Missouiti-Kansas City, Economics Blog:
New Economic Perspectives
http://neweconomicperspectives.org/

The Modern Money Network
http://www.modernmoneynetwork.org/

Other posts from Think left:

George Osborne says we’re running out of money ..

The fundamental deceit of ‘There’s No Money Left’

Ann Pettifor and the uncontrolled banking system

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Published on Apr 25, 2012

Renegade Economist talk show with Ann Pettifor

So, we all use Money …but what is Money?

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So, What is Money? 

Money is Debt!

  • Personal debt is at its highest level in history – an average of £54,000 per family
  • We currently pay £192 million in interest to the banks every single day
  • Almost no-one under 40 can afford a house
  • Over 2 million people can’t find work in the UK
  • But the government’s ‘answer’ to this debt crisis is to get people to borrow even more… 

It doesn’t have to be this way!

Positive Money is Campaigning to change the Way Money is Created – and has Proposals for How to Fix the Banking System. Perhaps George Osborne should listen! He is ignoring all the expert advice so what is George Osborne playing at? It is probably a great mistake to think that George Osborne, or at least those advising him, do not know what they are doing.  What George Osborne might gain as a result of taking the flak for being the ‘worst Chancellor’ of all times is a matter for speculation.