Why the ‘Magic Money Tree’ Matters

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 On BBC Question Time, the Prime Minsiter, Theresa May told a young nurse who hasn’t had a pay rise in eight years and is trying to earn a living that there was no more money, and that there isn’t a magic money tree. (See link)

The Tories know full well, that funds are available for the UK government to use as they think fit,  as we are a sovereign state, and have our own currency which the government releases for investment. But while in 2010 they made a public  fuss about a piece of paper which was saying ‘no money left’, they knew, all along’ what they wanted to do. They used this (ill-advised) joke to add credence to their Austerity agenda which has resulted in cuts so severe it has left people disabled suicidal, people homeless, and people who are working very hard, in poverty. Yet they  wanted those funds for the few, not for the many.

Since Margaret Thatcher’s cruel government snatched our children’s milk, and did not replenish our social housing, and decimated our industry,  and yet helped itself to public assets, the media has reinforced myths about mainstream economics. It continues in 21st Century, while  today’s Tories want to finish the job by, for example, cutting Police and Army personnel, and now they want to privatise our National  Health Service.

We cannot progress in redressing this imbalance  between rich and poor until these myths are exposed for what they are – just lies!

These are myths the Tories want us to believe ( see article) They are untrue, all of them

  • The state money system operates like our own household budget
  • Government spending relies on taxation and borrowing
  • The government needs to reduce the deficit, balance the books and save for the future
  • The government must learn to live within its means
  • The government has to cut public services like the NHS, education or welfare because we can no longer afford to pay for them   

The government is forever saying it’s the ‘taxpayers’ money which funds public services, and this just is not true. The government is the source of the money, and tax a tool for resdistributing  the wealth produced by our working people.   Once we accept this concept, then  we can see that Jeremy Corbyn’s Labour Party Manifesto is not a “Chritsmas Card List”, but a costed plan to invest in our society to rebuild Britain for the many, not the few. This is something which the vast majority want to see, but are still believing the Tory myths.

The Modern Money Matters website is a good source of information 

The Magic Money Tree Exists, Modern Money Matters

“Like the elephant in the room The Tree cannot be mentioned, because then the electorate might start asking awkward questions about public services — perhaps we should have some? — and taxation — are we overtaxed for the size of government we have, given that we still have people without work?

Once you know about The Tree you might have your politicians delay a casino build and build a hospital instead. You might let the rich people keep their coins, but stop them using those coins to reserve scarce doctors and teachers for their own purposes ahead of the general population.

The Tories want to privatise everything, and Labour want to hit rich people hard with taxation sticks. There are no doubt reasons for these fetishes that psychologists would find fascinating. But they are damaging to our nation. They get in the way of doing the job.”

In 1945, a Labour Government, after the ravages of war managed to invest in our society, and the will was there to do so. I believe the will is there now, but generations who have grown up believing what the Tory press have said,  do not realise this is all possible. Here is the Magic Money Tree idea of Labour’s Manifesto. Further economic explanations can be found as Modern Monetary Theory. (These are both known as MMT).

IMG_0939

Let’s dispel the Tory myth, and get the MMT idea of Economics out there. Then we start the rebuild. Our society has become so divided, we need to join together in creating a society for the Many not the Few.

 

 

 

EVERYTHING YOU EVER WANTED TO KNOW ABOUT HOW OUR MONEY SYSTEM WORKS BUT WERE AFRAID TO ASK

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EVERYTHING YOU EVER WANTED TO KNOW ABOUT HOW OUR MONEY SYSTEM WORKS BUT WERE AFRAID TO ASK

by Prue Plumridge

At a time of great political and economic uncertainty you may be scratching your head and asking what on earth has this article to do with you as you’ve enough trouble just keeping your job and your finances in order let alone worrying about getting the government deficit down and paying the national debt back! What a temptation it is to shake our heads and defer to the experts who, we believe, must know better. The subject of economics might seem a little tricky but the basic concepts are simpler to understand than you might think at first glance and, rather than being a dull and arcane subject, it has everything to do with your life and your well-being.

So let’s start with a short economics quiz. No cheating now just answer the following questions with a yes or no without peaking further down for the solutions.

  • The state money system operates like our own household budgets
  • Government spending relies on taxation and borrowing
  • The government needs to reduce the deficit, balance the books and save for the future
  • The government must learn to live within its means
  • The government has to cut public services like the NHS, education or welfare because we can no longer afford to pay for them

If you answered YES to all of those questions you might be surprised to learn that you have fallen into the mainstream trap. This is what mainstream economists and politicians want YOU to believe. But what if everything you ever thought you knew about how the money system works wasn’t actually true but was being used to justify an ideology which includes austerity and cutting the public services we all rely on?

Well that’s exactly the case! YOU have been deceived.

WHAT YOU NEED TO KNOW:

  • The UK government issues the currency out of thin air via keystrokes on a computer – yes really! Banks create money out of thin air too when a customer takes out a loan but that debt must be repaid with interest.

 

 

  • The UK government is not like a household or a business where its finances are concerned
  • When the UK government spends it creates money by crediting the reserves of commercial banks held at the central bank – the Bank of England. A monetarily sovereign government like the UK can never run out of money and can always meet its liabilities as long as they are designated in the local currency, in this case our British pounds
  • The government as the currency issuer spends money into existence and doesn’t need to tax or borrow on the markets to fund its expenditure. Think about it:
    • What sense would it make for the government to borrow money it had issued in the first place?
    • How can the government spend tax before it has received it? Your tax obligations can only be paid once the government has issued the money and it is deducted at source by the taxman from your salary. (And just to shock you a little bit more do you know what happens to your tax? It gets extinguished from existence.

So, tax is not funding government expenditure. We have just been conditioned to believe it does.

  • Tax does, however, have a number of specific functions which include:
    • Ensuring that the economy does not exceed its productive capacity and lead to inflation – taxing more if the economy starts to overheat and taxing less if it is slowing down.
    • Enabling wealth to be distributed more equitably. So, yes, the rich SHOULD pay the tax they owe but not because it is funding healthcare, education or public services. It does not.
  • If our expenditure exceeds our income we will be in debt and it may cause us financial concern. However, a government deficit is far from being the bogeyman it is presented as by experts and politicians. (Just to be clear a government deficit is difference between tax received and the amount government spends and the national debt is the accumulation of those deficits). Deficits are, in fact, normal and necessary. They represent YOUR income. The politicians won’t tell you this (perhaps they don’t know) but in historical terms governments have run fiscal deficits for most of the time and have hardly ever run balanced budgets. Indeed, when it has happened they have occurred just before economic downturns. Think about that. What conclusions might you draw?
  • Budget surpluses are not the equivalent of saving to fund future government expenditure no matter what the politicians tell you. As the currency user you can save for that holiday you’ve always wanted but this does not apply to a sovereign government which is the currency issuer, cannot run out of money and can spend when it chooses. When a government chooses to pursue a public surplus what it actually means is removing wealth from the non-government sector -in other words you and me, the currency users. When that happens poverty and private debt increases instead. And that is exactly what has happened.
  • When you borrow money from the bank you have to repay the debt with interest. If you don’t the debt collector will be round pretty sharpish. This does not apply to a monetary sovereign government which cannot go bankrupt so the debt collectors won’t be knocking on the door of the treasury ready to haul off its assets any time soon.
  • Government funds public services like the NHS through creating money not by borrowing or taxing to pay for it.

But won’t ‘printing’ money create inflation I hear you gasp. After all you’ve heard about all about hyperinflation in Germany and Zimbabwe and politicians keep telling us all about the evils of ‘printing’ money and hyperinflation. As with everything there are caveats – nobody is suggesting for a moment that a government could carry on spending ad infinitum. Money may be infinite but resources are not.

The UK government may not be constrained financially but it is limited by availability of real resources – people, skills, technology, equipment, infrastructure, natural resources and ecological constraints. It is NEVER constrained by money.

We often hear journalists and politicians talk about a government’s financial credibility suggesting that an increase in the debt or deficit is an indicator that a government cannot be trusted to manage the economy effectively. However, this is the wrong measure of effectiveness. We should judge a government on the economic choices it made and whether it advanced public purpose. Did it create the necessary infrastructure to sustain a healthy economy? Did it invest in the health of the nation, in education, transport, food and farming security, renewable energy infrastructure or research and development? Did it ensure that citizens were protected in the event of illness, unemployment and disability or provide good pensions? Did it pursue full employment policies? Did it spend enough during economic downturns and offer a job guarantee for all those who wanted to work? And lastly did it use the available resources in the most effective way possible for the benefit of all?

If the answer to any of these questions is no then a government has failed to deliver in its primary purpose as a servant of the people. “The Government is us”.

Remember, a good government is one which:

  • deficit spends enough in relation to the prevailing economic conditions.
  • makes choices aimed at ensuring the well-being of the many and not just the few using the available resources as effectively and equitably as possible.

So, when people ask you as they invariably will ‘‘can we afford it’ the answer is yes.  The government creates the money and when it spends it benefits the private, non-government sector. In economic parlance, a government deficit equals a private sector surplus.

In short, spending equals income to someone – you, me, public service employees, pensioners, sick and disabled people receiving benefits all of whom will spend that money in the local or national economy not to mention businesses who will invest if they are confident in the government’s handling of the economy.

While we focus on the question of whether we can afford it in money terms we are ignoring the more important question of what the consequences are for the health and economic well-being of the nation if governments don’t spend adequately.  Austerity and cuts to public services have been presented as a financial necessity (however erroneous that argument is) and yet at the same time this government has had no problem at all with magicking up money from thin air to purchase weapons, fight wars, repair the Royal Estate, hand out tax breaks to the already wealthy or give public money to private corporations to run public services. It turns out the government is a real handy cash cow for the corporate sector.

Economic well-being depends not on money but governments making good choices which benefit us all and, given the record of the Conservatives over the last seven years, this is the question that should be on our lips not can we afford it.

 

Credits to:

https://era-blog.com/2016/12/05/paying-for-public-services-in-a-monetary-sovereign-state/

https://www.thepileus.com/economics/jeremy-corbyn-does-not-need-to-borrow-to-pay-for-his-policies/

https://www.thepileus.com/economics/labours-economic-alternative-to-neoliberalism/

http://bilbo.economicoutlook.net/blog/?p=25961

https://www.theguardian.com/commentisfree/video/2015/feb/04/another-economic-crash-is-coming-how-did-this-happen-video

https://www.theguardian.com/money/2017/apr/08/consumer-debt-loans-credit-cards-bank-of-england

 

 

 

 

 

 

Pensions: Thatcher’s vision is coming to fruition

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Society is indeed a contract. It is a partnership…. not only between those who are living, but between those who are living, those who are dead, and those who are to be born”  Edmund Burke, Reflections on the Revolution in France 1790

Pensions: Thatcher’s vision is coming to fruition by Prue Plumridge

At the end of last year the Institute for Public Policy Research published its ‘Future Proof report’. It painted a bleak picture for British citizens by 2030.  It suggested that, unless solutions were sought, an ageing population would place a huge and unsustainable burden on the public coffers.

In 2013, The Intergenerational Foundation published the results of a survey of 50 of the UK’s leading thinkers on economics which was entitled ‘Can the UK afford to pay Pensions?

The growing national debt and pension liabilities either to public sector pension schemes and the state pension were cited as reasons to seek solutions to the so called ‘demographic burden’ of an ageing baby boomer population.  The report suggested that these liabilities would be a considerable financial burden which future generations would have to pay off through their taxes.

In 2014, the Institute of Economic affairs also added its warning by claiming that future generations could be ‘short-changed’ and the public finances put in jeopardy unless the UK takes serious measures to reform the state pension system.  Clearly there is no shortage of organisations and politicians ready to pitch in to reinforce this message.  To that end, Sir John Cridland, former CBI Director General, is due to publish an interim report early this year aimed at ‘ensuring the state pension remains affordable’.

In response to these fears, changes to the pension retirement age are already in progress and, whilst it is currently set at 66, it has been suggested that the Department of Work and Pensions may have plans to increase it further to the age of 70.  Furthermore, the Chancellor Philip Hammond has hinted that after 2020 state pensions may no longer be ring-fenced from spending cuts.

Added to these messages of unaffordability there is also something far more insidious going on.  In Australia, a crossbench senator recently said that ‘taking the pension shouldn’t be something you aspire to, it should be something you try to avoid because it signifies you’re in a low-income group’.  He suggested that payments be viewed as welfare not an entitlement.  Right wing ideologies which promote the primacy of the individual over that of the well-being of a wider community have led to an emphasis on individual responsibility which has, in turn, led to the shaming of those who find themselves on the wrong end of the economic stick.  The inference is that if you’re poor, unemployed or sick then you only have yourself to blame.

The political discourse is making it clear now that pensioners are not only about to be added to this list but also perhaps even condemned for not having saved sufficiently to pay for a decent retirement.  Even the prospect of retiring is no longer sacrosanct.  The Tory peer, Baroness Altmann, tweeted last year that “private pension/health will drive retirement age” thus suggesting that unless you’ve got a big fat private pension or health insurance you can forget retiring on a state pension because it simply will not pay enough to cover your costs.  Clearly retirement is intended to become the privilege of the rich and well heeled.

Citizens face the prospect not only of a two-tier health and social care service but also a two-tier pension entitlement – one for those who can afford to save for one and one for those who can’t which may condemn people to working beyond retirement just to survive.

As Peter Fleming recently wrote in an article in the Guardian:

“We can trace the untimely demise of retirement to a number of assumptions about how society ought to be organised.  At no other time since its inception has the welfare state been so hated by the governing elite.  Social care.  Unemployment assistance.  Health.  Local councils and libraries.  Municipal parks.  Anything relating to what used to be called “the public good” is attacked at the roots.  Austerity redefines these things as fiscal liabilities or deficits rather than shared investments in common decency.  It was only a matter of time before pensions too were put on the chopping block”.

Of course, it might also be said that things are not looking favourable either for those who are paying into private pensions.  Not only have many defined benefit pension schemes been closed and replaced with pensions linked to the uncertainties of the stock and bond market but also in a new development the government has recently announced a consultation paper which could take thousands of pounds of income away from 11 million retirees.  This means basing annual increases on the consumer price index rather than the retail price index.  The paper also suggests that where a company is facing significant financial pressures it could suspend increases altogether.  In the heady days of market superiority private pensions might have been all the rage but in these cash strapped times and market uncertainty the gloss may be rubbing off.

Whilst clearly the mainstream and ideologically inspired experts view this demographic transition as a ticking time bomb of the financial kind, I want to investigate in this article how this view has arisen and show that, because we misunderstand how our money system actually works, the argument is far from an affordability issue.

Since the post war settlement which led to the creation of social welfare provision including a state pension and free healthcare and education citizens have been bound together by a social contract based on mutual support across the generations.  That social contract is now under threat.  Young people quite rightly compare their impoverished lives with those of their post war parents and grandparents.  Lack of adequate, affordable housing, debt ridden higher education, poorer employment opportunities, low pay and lack of job security not to mention the prospect of working longer and a poverty stricken old age are all a cause for anxiety among young people who fear for their future prosperity.

Quite predictably it stirs up resentment as they perceive the older generation having very nice, comfortable lives thank you with their own homes and decent pensions!  These are advantages that the young can scarcely dream of unless they are lucky enough to have a helping financial hand from parents or grandparents. The inference is that the social contract is no longer sustainable because in the future there will not be enough young people generating tax receipts and income to fund all those things which we have come to rely on to make society decent and civilised.

At the Conservative Conference last October the current Chancellor, Philip Hammond, warned of the dangers of piling up debt for our children and grandchildren promising he would restore fiscal discipline and get Britain back to living within its means.  Georgia Gould, a Labour Councillor in North London, has even suggested that we may have to reconsider the principle of universal pension benefits in the light of the supposed financial ‘black hole’ they represent.

What should be the right ‘balance’ of public spending between the generations to ensure a fair distribution of wealth and resources is the mainstream question and is there even a future for state paid pensions?

The message that our pensions along with our social security system is too costly and unsustainable is constantly drummed into the public consciousness.  Austerity, cutting public spending and privatisation have been presented by all the main parties (until recently) as necessary to get our public finances ‘under control’.  And yet, despite the growing evidence that cutting government expenditure on public and social infrastructure has had catastrophic consequences for the nation’s overall economic well-being – fiscal discipline and paying down debt is the re-occurring mantra of mainstream economists and politicians (even if the timescale for such plans has slipped somewhat in the face of an uncertain economy).

We need urgently to challenge these claims.

It might first be worthwhile spending some time on explaining from where this narrative arose.  The Keynsian inspired post war consensus started to break down in the 1970s with the two oil shocks and resultant rising inflation and unemployment.  This also coincided with the infiltration of neoliberal/monetarist ideas into the political mindset which was to have increasingly destructive consequences on economic policy for the next 40 years.

This decade saw the death knell for post war Keynsian policies and initiated a shift away from full employment.  Labour eventually paid a high price for its management of the economic crisis and lost the election to the Tories in 1979.  Margaret Thatcher brought to the table an economic vision inspired by Friedrich Hayek and Milton Friedman and her policies reflected her belief in the superiority of the market, less government involvement and the importance of the individual.  The idea implicit in this dogma was that the welfare state deprived people of the opportunity to make their own arrangements for pensions, health and housing.

As a result, the merits of home ownership were promoted and our stock of social housing sold off, along with the opening up of the market for private pensions in an attempt to weaken the state’s own pension provision, both of which continue today.  Treasury documents released last year revealed that Thatcher also supported a plan to dismantle the welfare state and introduce private health insurance to end the NHS.

By the time Labour finally returned to power, market driven ideology was firmly entrenched in the political narrative.  Under Tony Blair’s leadership the party, with its ‘third way’ credentials, rejected its socialist roots and fostered a laissez-faire capitalism of globalised markets and increasing corporate power.

Philip Bobbitt in his book ‘The Shield of Achilles’ published in 2002 suggested that power of the nation state would, over time, lose its authority to the ‘market state’.  The ‘nation state’ he said ‘derives its power through its promise to improve its citizen’s material wellbeing, while the market state is legitimised through its promise to maximise its citizens’ opportunities.’ To put it simply the centralised state has indeed been replaced by a market state orthodoxy which is fragmented and outsourced. In short, public money is being poured into the coffers of global companies to run public services for profit.  It is a place where, it would seem, the term ‘public purpose’ has its narrowest meaning.

Following the Global Financial Crash when Labour with some success flirted for a short period with Keynes, the Tories returned to power in 2010 to reinforce the corporate dominated, revolving door politics of the past decades.  And, on the basis of an incorrect accusation of Labour’s overspending, began their attack on public services, the NHS and social security peddling the cruel mantra of ‘we must live within our means’ in justification.

However, the increased poverty, inequality and insecurity can be attributed not to previous governments overspending or living beyond their financial means but rather a pernicious ideology which has put increasing the wealth of the few above the well-being of society and raised the status of the corporations to gods.

Politicians aided by a self-interested press, corporations and the wealthy have convinced the public that the state finances are like their own household budgets and that the national debt and deficit are dirty words.  We have to cut expenditure to get our public finances in order to prevent burdening future generations with debt and higher taxes is an oft repeated message in the media.

So, is it true that by borrowing now we are burdening future generations?  The short answer is NO and is indeed illogical.  We should be challenging such a distortion and indeed presenting the real facts about how our money system works in practice.

The economist, Professor Bill Mitchell rightly points out that past and current policy decisions do affect young people today and will also affect future, yet to be born, generations.  However, as we have seen this has been presented by politicians and think tanks in terms of financial affordability – whether there is enough money in the public pot to continue paying for social security, the NHS, public services and education both now and in the future.

Deficits and public debt have become society’s bogeyman which has proved a very useful myth to justify continued public sector cuts and privatisation thus serving the pursuit of a political ideology rather than any sort of economic reality.

We are regaled endlessly with the message that fiscal discipline is vital if we are to maintain a healthy ‘bank’ balance, save for a rainy day or avoid bankruptcy.  Of course, that would be true if the State’s finances ran like our own household budgets where our expenditure is limited by our income.  However, this may come as a shock to some but in a post gold standard world government spending is not constrained by the taxes we pay.

For an explanation, we must look at how a sovereign, currency issuing government like ours actually operates.  As Professor Bill Mitchell points out:

“The fact is that the current government has as much ‘money’ now as it had yesterday and the same amount, it will have tomorrow.  That is, it has whatever it wants to spend.  It always has that.  It has no more or less capacity to spend today because there were surpluses in the past than it would have if there have been deficits in the past.“

“Borrowing” doesn’t take any money at all from the pockets of future taxpayers and baby boomers (like myself) have never been asked to pay back a single penny of the public ‘debt’ accumulated by their parents’ generation.  Indeed, those fiscal deficits created public assets and infrastructure from which we have all benefited. Those terms debt and borrowing are loaded words which fit very nicely with our understanding of how our personal finances operate in practice in a Wilkins Micawber sort of way.  However, in terms of a sovereign state issuing its own currency it bears no relationship to our own household budgets.  The funds that pay for bonds or what is called ‘borrowing’ began life in government spending.  So, when economic experts and politicians refer to debt clocks claiming that we are sinking under its weight and we cannot afford to burden future generations we need to take a step back and look at it rationally.

If the government is the currency issuer then as Professor Mitchell points out, it is in fact, only ‘borrowing’ its own spending back.  So how on earth can we be said to be ‘borrowing’ from the future?

As Paul Segal, a senior lecturer in economics noted, the debt is ‘the money the government owes us, not money that we owe to anyone else. […..] What is called the ‘national debt’ is our own savings, looked at the from other side of the balance sheet”.  And how does it get there?  We put our savings into banks and pension funds which are then invested by those same banks and pension funds when they buy interest bearing government bonds, which include premium bonds by the way,from which investors and retirees then enjoy a return as income which is either saved or spent into the economy. In short, if you’re worried about the national debt then you should do the decent thing and stop enjoying the proceeds of your investment savings.

Furthermore, and fundamentally, as Bill Mitchell highlights ‘Every generation chooses its own tax rates. That is, the mix of public and private sector involvement in the economy is a political choice’  The key word here is choice.  Governments make policy choices related to the particular politico/economic ideology they espouse and for the last forty years and more that choice across the political spectrum has been neoliberal and market driven.

The result has been more about redistribution of wealth upwards than ‘trickle down’ and this has been at the expense of ordinary working people.  As the economist, Ellis Winningham recently noted: ‘The rich have been robbing us’.

Oxfam reported in January that runaway inequality has created a world where 62 people own as much as the poorest half of the world’s population.

The idea that government policy should serve public purpose aims as it did during the post war years for the economic well-being of a nation has largely been abandoned in favourof the rise of a deregulated corporate driven state whose hallmark has been excessive greed.

When those on opposition benches take the government of the day to task for rising debt and increasing deficits as if these were signs of poor economic management, the public are quite understandably horrified at government’s apparent wastefulness – how that suits the orthodox agenda!  The debt and deficit are, however, largely misunderstood by the public, and politicians either take advantage of that confusion to be better able to justify ideological austerity, cuts and privatisation or simply don’t understand that their own knowledge is flawed.

In short, deficits (i.e. the difference between what is received in taxation and actual government spending) are neither good nor bad in themselves – they are more of an economic indicator of whether a government is doing its job effectively or not.  Thus, the success or failure of an economy will depend on whether there is an appropriate level of government spending to ensure full and productive employment.  Historically, fiscal deficits have in fact been an enduring feature of post war economies and are, in the words of the economist Dr Steven Hail, ‘normal and necessary’.

Indeed in 1982 Gardner Ackley wrote:

“My own position on deficits has always been, and remains, that deficits, per se, are neither good nor bad.  There are times when they are not only appropriate but even highly desirable, and there are times when they are inappropriate and dangerous.  During a recession or a period of “stagflation”, deficits are nearly unavoidable, and are likely to be constructive rather than harmful.”

…It is not the government’s role to run deficits or surpluses. We want governments to make policy choices that will maximise the potential of the people to enjoy their lives and contribute the best they can, given their own circumstances to the well-being of society and the planet.

We might call this goal one of public purpose.  An essential element of that goal, given current cultural mores in most nations, will be to ensure that everyone who wants to work has a job and for those that are unable to work, for whatever reason, have adequate income support so they are not alienated and socially-excluded.

When Labour came to power after the second world war the aim of Clement Atlee’s government was to create a more stable, fair and less exploitative society than had been the case before the war.  Fiscal deficits were an enabling factor in achieving this.  Our parents and grandparents didn’t whisper in corners about government wasting money or talk about how governments should be fiscally sound they understood its role in making their lives better.  We have all benefited from that wisdom and foresight even if we have increasingly forgotten that, over the last few decades, as market and monetarist orthodoxy has replaced a public purpose vision which benefited citizens through access to publicly paid for health and education, decent housing, public services, social security (including pensions), redistribution of wealth and a focus on full employment.  We neither went bankrupt then creating a fairer society and nor can we do so today no matter what those that claim to know try to tell us.

The idea that we can no longer afford such a vision because we can’t afford it is one of the biggest inventions of our time and one that will continue to impoverish society if we let it.  So, in the same way as our parents and grandparents understood the importance of government’s role in investing in better lives for themselves and for their children we must embrace that same understanding and reject the paltry arguments of orthodox economists which has led to increasing poverty and inequality through a casualised labour market, wage suppression and attacks on trade unions all to support global trade, an emphasis on a largely unproductive finance sector and the politics of austerity.  There is an alternative to this miserable economic narrative which wants us to believe that governments are financially constrained and all it requires, is for us to challenge those who tell us there isn’t one.

Fundamentally a healthy economy is dependent on a healthy and educated population which is not driven by fear of want.  The social security system including state pensions, the NHS, public services and transport networks are all necessary to the good working of society and a nation cannot function properly without the vital infrastructure which underpins a strong economy.

So, if a sovereign state like ours which issues its own currency, is not constrained by taxation, cannot run out of money, go bankrupt or burden future generations, are there any real constraints to government spending?  There are certainly caveats which relate to resource availability whether that’s raw materials, goods, services or human labour.  Money is not finite but resources are whether they are human or otherwise.  To quote again Gardner Ackley:

“That goal is constrained by the availability of real resources that the nation commands – labour, capital, land, etc – but not by the financial capacity of the currency-issuing government.”

Whilst this generation cannot burden future generations with higher taxes or debt burden we have to recognise that there are limitations related to consumption of finite resources and that the resulting damage to the environment will diminish the prospects for our children’s children and beyond.  This is perhaps the most pressing problem of our times which we must reflect on urgently.  Therefore, the onus on this generation and its elected governments is to do two things: firstly to commit to investing in our young people over the long term to ensure that they can be employed in productive well paid jobs to serve the needs of future generations including the retired; and secondly but more importantly we have a responsibility to ensure that we actually have an environmentally sound planet to bequeath to our grandchildren and their children.

We should be clear that the current government has made an ideological choice instead to impoverish future generations by cutting spending and all for ideological reasons that have nothing to do with the well-being of society today or in the future.

References

http://www.ippr.org/publications/future-proof- britain-in- the-2020s

http://www.if.org.uk/wp-content/uploads/2013/02/Can- the-UK- Afford-to- Pay-

Pensions.pdf

https://iea.org.uk/publications/research/the-government- debt-iceberg

https://www.gov.uk/government/news/john-cridland- cbe-launches- consultation-on-

the-state- pension-age

http://www.bbc.co.uk/programmes/b086t0mb

https://www.theguardian.com/commentisfree/2015/oct/24/young-bear- burden-of-

pensioner-prosperity

http://www.abc.net.au/news/2017-01- 02/david-leyonhjelm- calls-to- restrict-pension-

assets-test/8157924

https://www.theguardian.com/commentisfree/2017/feb/14/wealthy-retire- austerity-

pensioners-work

http://www.telegraph.co.uk/news/2016/10/03/philip-hammond- budget-surplus-

conservative-conference- live/

http://www.newstatesman.com/politics/2017/02/goodbye-liberal- era

https://www.theguardian.com/education/2009/may/19/philip-bobbitt- kissinger-cuba

https://www.theguardian.com/commentisfree/2010/jun/17/fiscal-deficit- threat

http://bilbo.economicoutlook.net/blog/?p=28597

https://alittleecon.wordpress.com/2014/08/06/government-debt- is-not- a-burden- on-

future-generations/

http://bilbo.economicoutlook.net/blog/?p=3891

http://bilbo.economicoutlook.net/blog/?p=23673

Margaret Thatcher’s Biscuit Tin – and Austerity

Margaret Thatcher’s Biscuit Tin and the Austerity Scare

From Pam Field and Syzygysue

The Austerity Scare is the greatest myth, by which the rich have deprived others of their basic needs of survival (Maslow), by some argument that those are unaffordable. How can it be justified to deny anyone these basic human rights, while others have vast resources far beyond their own personal needs? This wealth, and hence power was gained  by the systematic acquisition of resources by unjust means, much as the barons claimed land to be their own.  (Primary accumulation – dispossession of low income people from their high value land). By what right can anyone claim to have a right to own earth when others cannot?

Benn EstablishmentHaving power of the law permits reinforcement of privilege so that attempt to brainwash the public  through whatever means is available – education, press, advertisements, commercialisation  – or force. So the very rich have the means to control all the sources of food and sustenance, the media, the security and defence. Fear of destitution leads to social division, and of course with disunity no resistance can be effective. What needs to be done to redress the imbalance?

There are sufficient resources on this planet for everyone.  Oxfam  believes there can be enough food for everyone…

IF we give enough aid to stop children dying from hunger and help the poorest families feed themselves

IF governments stop big companies dodging tax in poor countries, so that millions of people can free themselves from hunger

IF we stop poor farmers being forced off their land and we grow crops to feed people not fuel cars

IF governments and big companies are honest and open about their actions that stop people getting enough food.

It is shameful that in Britain, the seventh richest nation, has 25% of children living in poverty, many people are homeless and one million people are relying on food-banks. It is a scandal created by gross mismanagement, or by wilful neglect. The Tories recall the Victorian days of Empire, like the cheering and flag waving Falkland task force, without addressing the fundamental truth.

 Any society can only measure its wealth by the poorest, and its strength as the weakest.

Having seen the horrors man can inflict on man in WW2, there was a united resolve which followed that it should never be repeated, and a determination to build a fair society fit for everyone. Rationing was accepted after the war to ensure a fairer distribution of scarce resources. Meanwhile Attlee’s Labour government invested in full employment, massive house building, a welfare state and National Health Service. There was a growth in the economy, despite the ravages left by war.

“The psychology of competition and love of Peace are uneasy bedfellows” Aneurin Bevan

One of the saddest legacies of Margaret Thatcher’s premiership must have been the destruction of optimism in society, the killing of compassion, and comradeship, and communities.  It was replaced with isolation, resentment and fear engendered by soaring unemployment, caused by destruction of manufacturing industries while attacking on trade unions, so making the working class further malleable by the ruling elite.

The idea that the nation’s wealth was somehow like the family budget, pennies hidden away in a biscuit tin in the larder, just to be taken out and spent on a trip to Margate when the factory shuts down for a fortnight in August, can be understood as people prioritise their needs by similar means.

So, unbelievably, Margaret Thatcher sold the idea to the nation, that the money which the government has to spend on schools and hospitals, is like the microeconomics of a family budget, or the ins and outs of her parents’ grocers shop. And since that time the biscuit tin idea comes into play, “There’s no money left” as Cameron carried that piece of paper to hustings in May. “The nation can’t afford it, we’ve all got to tighten our belts.”  “We’re all in it together!”

Now, where does wealth come from? It comes from the labour, skills, arts, and talents of people, from research, technology and from the natural  resources of the planet. Did Margaret Thatcher expect the nation to believe that they can be parceled up and saved in the biscuit tin?

Biscuit tin

As the cuts to basic provisions became chipped away, so fear sets in, the law of the jungle, competition, scrambling to get to the top, developing addictions to more and more material goods to satisfy a lack of something fundamental – happiness. It might seem a cliché, but this is the background to the shallow, inadequate shells we are becoming, soulless commodities suspicious of some others and hatefully despising the rest.

“The successful as well as the unsuccessful are unemancipated in the competitive society” (Bevan)

It doesn’t have to be like this. Of course money is not hidden away in some virtual biscuit tin, no longer gold hidden in vaults to be hauled from place to place. Austerity is totally unnecessary and we can change it at will once we accept what is wrong.

Money is a tool by which goods can be shared around ensuring management of resources, rewards for labour and supply, and trade.  Money doesn’t originate  from the taxpayer. It comes from the government spending.  The US dollar and the UK pound are sovereign monetary systems under control of their respective nations.

Neoliberal economics have led to the greatest inequalities in human history, based on the mystique, that market forces will adjust to give the best possible outcomes.

Considering the unhappiness, poverty, and isolation, in what sense is the current state of the UK, the best of all possible worlds?

We are told that there is no money left so that public services must be privatized and government spending cut but the actual problem is that corporations are hoarding their profits, not investing in well-paid jobs in the real economy and instead are chasing fictitious capital.

Real wages have not increased since the 1970s and consequently there is insufficient demand in the economy, and increasing levels of personal indebtedness.  Forget the national debt, it is household debt that is the real danger!

This is the slowest recovery of GDP per head on record. See graph (Touchstone Blog)

As Simon Wren-Lewis writes:

Anyone who continues to describe what is happening in the UK as a ‘strong recovery’ either has not bothered to look at the data, or is being deliberately deceptive.’

What is desperately needed is not ‘Austerity’, but a fiscal stimulus and if the banks and the corporations will not invest in the real economy, then the government should act as ‘lender of last resort’.  In other words, a stimulus such as that proposed by Jeremy Corbyn, with investment in jobs, the NHS, education and mitigating climate change.

The allegorical Frank Baum story “The Wizard of Oz” reflects clearly how the pursuit of the yellow brick road “gold”, leading to the “Emerald City” revealed merely that there was no magician, just a helpless, powerless man who admitted the capitalist ideal was a fallacy. The main characters had lacked belief in their own limitations, lack of courage, brain or heart, and believing therefore that others had power. And in that idea, we can see that economy needs to be run for the benefit of the people, not according to the vagaries of the so-called ‘wisdom of the markets’.

So what is necessary is that

… First we need to accept that economy is something which sovereign governments have the power to organise.

… The financial system has been abused for too long.  It needs to be under democratic regulation and control.

…The economy needs to be balanced and controlled to allow people and societies to function sufficiently so that all members can afford the essentials of Maslow, live comfortably, with a little bit extra for everyone to enjoy their leisure.

…There needs to be a commitment to full employment.

… Basic needs such as food, water, energy, transport, health and education need to be under democratic control.

IT IS THE RESPONSIBILITY OF GOVERNMENT to ensure adequate distribution of these services. Therefore nationalisation, and/or transparent democratic control is necessary.  To treat food, water, and medical supplies as commodities to be gambled with is an obscene and unacceptable concession to the very rich.

Cutting spending during recession/depression only delays or forestalls a recovery.  The allegory of Alice in Wonderland describes falling down a rabbit hole, and seeing the world differently, and that is what is needed – the opposite of austerity. Jeremy Corbyn’s Peoples’ Quantitative Easing is about the government producing money, as we have our currency, the government can do that,  but instead of this going to private banks, this money goes directly to the people wherever it is needed – for building, homes, schools, hospitals – and creating jobs. In other words, a responsible state in which everyone would have access to needs being met, and poverty eradicated.

We are told that the deficit is too big but the reality is that it is still too small.  Inflation is only a risk once the last unemployed/underemployed person who wants or needs a job is employed.

Since private companies are not providing sufficient employment, we need government to invest in a job’s guarantee, a buffer stock.  This would have the advantage of underpinning a living wage that the private sector would have to match in order to attract workers.  It would also allow individuals to maintain or upgrade their skills.  It would decrease the mental health problems associated with unemployment, and finally, it would mean that all sorts of worthwhile activity, which would not be undertaken by the private sector, could occur.

The anger and  resentment has been smouldering for a long time. The lack of opposition to neoliberalism and austerity has disillusioned the electorate, so many no longer see any point in even voting.  In August 2010, riots broke out in English cities, in London, and Birmingham. This August, Jeremy Corbyn has reached the ordinary people,  and has channelled that anger in such a way that people are united, and we are a witnessing the greatest political force in 64 years, a tidal wave which can sweep away neoliberalism and bring our communities back. The Labour Movement is reborn. At last, there is hope.

The politics of divide and rule, of resentment and ” benefit scroungers ” is where we have lost our way.  It is not about politics of envy.  It is about the politics of justice. We need brave political leaders to reunite our communities, put away the law of the jungle, and bring back the Spirit of ’45, the sort of social cohesion which followed WW2.

The biscuit tin myth has to be tackled,

and the sooner , the better.