It is quite extraordinary that one of the key proposals to come out of yesterday's meeting between Merkel and Sarkozy was a demand that Eurozone countries out balanced budget legislation in place by 2012.
Balanced budgets are, of course, designed to constrain government activity. They're not an economic policy: they're a right wing political policy that says a government may not borrow to fund its activities.
So, unlike business, which borrows extensively to fund investment, and unlike households, the vast majority of whom could not ever acquire a home without borrowing, government is not allowed to borrow under these proposals even if it were appropriate for the government to do so to fund programmes that can supply considerable future benefit to the people of its country.
So, hospitals must be paid for up front. And so must schools. And roads. And all other infrastructure.
More than that, if the market fails to supply a enough demand to create full employment (as is the case now) then such a move would ban the government form intervening to create demand even though it is known that the only way to get out of the resulting recessionary downward spiral is for the governmentto intervene and stimulate demand until recovery occurs - when rightly it should pull back and repay its debts. In effect these laws would outlaw the only proven mechanism for defeating recession as created by Keynes in the 1930s.
To describe the measures as economic insanity is in the circumstances being kind to them.
It's easy to see the logic behind such proposals though. All hospitals must be private in future if this is to happen; and so will all road building be privately funded. Education will now be under the control of the private sector and run for its benefit. Whilst if there are unemployed, so what? It keeps wage rates down for the benefit of business.
This is law would then be designed for three purposes. The first is to make sure that privatisation across Europe is guaranteed. The second is to advance the interests of the banks who will profit enormously from that process because there is so much more money to be made by funding infrastructure privately than through government (which in itself is the clearest measure of the inefficiency of the proposal and the massive likely cost to the taxpayer of doing it) and finally it's designed to shift yet more of the resources of Europe to the rich.
Which is why it has to be vehemently opposed.
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Your last paragraph captures the intent of this policy approach perfectly I think, Richard. The problem we have with combating this destructive nonsence is that ‘balanced budgets’ sounds so sensible to Jo Public – after all, isn’t it what we’re all being told we should be doing, not living beyond our means as we have for so long now.
So I think there’s a major presentational issue that those of us who stand against this particular form of neo-liberal doctrine have to recognise and confront. But closely related to this is, I think, a physcological – maybe better described as behavioural – dimension that afflicts many ordinary citizens. I’ll give you an example from personal experience.
For the last year I’ve been working on a research project that includes people from cities in Iceland, Croatia and Eire (as well as the UK). These three countries have been very badly impacted by the post 2008 economic downturn in ways that we are all familiar with so don’t need repeating here. When I speak with people about what they think and feel about what’s gone on over the last three years two related things come across very strongly. The first is anger – about the causes of what’s happened, and about the fact that nobody – not even in Iceland despite what we might read – has been held to account. The second is a form of resignation (defeat?) which includes acceptance of how powerless ordinary citizens feel they are in the economic and social situations they now find themselves.
From time to time anger becomes the dominant force and people get out and do something to show this. But I’m afraid to say that mostly what I hear from people is acceptance of the ‘inevitability’ of what they are being told they must now do/face to ‘pay back’ for the years of ‘excess’: unemployment or at best cuts in income, declining public services and infrastucture, etc, etc. In short, the balanced budget narrative and its many variants – whether applied at a personal, state or international level – has now become the zeitgeist of our time. We can rest assured that there are many elite groups in society who will do all they can to ensure that for the ordinary citizen it remains so for as long as possible.
All you say is depressingly familiar, and I fear true
Empowering people to aspire to live in a Courageous State that challenges these accepted norms is my current project
Just finishing first complete edit now
Seeing publisher at lunch time
Neither business nor households may create legal tender from thin air. Governments can, of course, and the sooner they begin doing just that for the benefit of their citizens the better.
BB
I agree with much of what you say however I do not agree here. I don’t see why governments have any right to get us as a nation into debt without asking us and leaving us and our children to continually pay off the interest of billions per year… I pay off my credit card each month therefore don’t appreciate a government who doesn’t get themselves in order… Yes, this means no deficit spending but it’s worthwhile and if the government aims for a surplus and gives back the surplus amount as a credit (see Calgary, Alberta) then the government can stimulate growth in extra ways unforeseen.
But government is nothing at all like you and your credit card bill
And it is candidly indicative of a poverty of thinking on your part to presume that it is
“I agree with much of what you say however I do not agree here. I don’t see why governments have any right to get us as a nation into debt without asking us and leaving us and our children to continually pay off the interest of billions per year…”
But governments have always ran at a deficit. Why do governmnents sell bonds and borrow off banks, pension funds and insurance companies? Because they don’t receive enough revenue through taxes to fund the economy. Why else would the government choose to go into debt? Indeed, the economy couldn’t function if it was completely reliant on tax revenue…in fact it would soon grind to a complete halt!
Government debt is not like other debt as the government never actually pays off the national debt. It is quite unrepayable and has existed since the 17th century.
Even though this government is actually attempting to cut public spending by £81 billion by 2016, it is still having to borrow at a rate of around £10 billion a month. The government, of course, could claim with some justification that much of this is due to the massive bailout of the banks. However, lack of circulation of money due to lack of growth is also making these debts worse than they otherwise would be. Any growth that does occur under the current economic policy is often killed off by the lack of demand due to the governments fixation of doing something that cannot realistically be done under a debt-based system, that is, creating a balanced economy.
It is also important to remember that we have barely gotten through the “taster” if government cuts…….the main course is yet to come.
Until this shower see sense, and that isn’t likely anytime soon, all the news on the economic front is going to be nothing but bad….in fact, attempting to remove £81 billion out of the economy is pure insanity and will, more than likely, cause the economy to totally collapse!
You seem to have accepted the simplistic slogan endlessly repeated by Osborne that we have ‘maxed out on the credit card’. I think that should emigrate to the US and join the Tea Party. Governments need to borrow for investment for future development and prosperity. I suggest that you read the literature on the ‘developmental state’ and the writings of Ha-Joon Chang, a Cambridge economist born in South Korea.
Three quick points: First, it’s been difficult to find any detail about exactly what is being proposed: some reports talk about a ‘deficit limit’. I strongly doubt that the proposal is that all government borrowing is to be banned.
Second, it’s completely valid to point out that businesses and households borrow. Generally one hopes that this is done to fund things that will bring benefits for the longer term. It’s the same for government, and I would hope that any such limits would draw the distinction between revenue and capital spending. Borrowing to fund revenue spending is surely only desirable in limited circumstances.
Finally, the other side of the Keynesian argument is that governments should run surpluses in good times, which of course in general they fail to do. Your headline implies that this shouldn’t ever be the case!
Chris
I think I make quite clear I believe in running surpluses too
But people forget labour did…..
And I have a horrible fear the paper’s headlines tell the real story on this one
Richard
Matt, you should do some reading. You might want to look up the works of C H Douglas, who was an active campaigner on the subject of social credit some decades ago. Try here http://douglassocialcredit.com/douglas.php or for your general education you might like to try (I assume you’re British) reading Grip of Death by Michael Rowbotham. Your life will change after you read about five pages of it, trust me. Basically the banks siphon off the major part of all the money this country generates. We are left to quibble over the dregs. S’true! Go read.
BB
Grip of Death is good
Grip of Death takes most received wisdom of economics and pretty much rips it to shreds. A must read that shows up the lie that there is no alternative to the present economic consensus.
A book to be cherished!
Off to order Grip of Death now, Bill (and Richard and Stevo). Thanks for the recommendation.
After that try ‘Web of Debt’ from Ellen Brown but be sure to get the most recent edition. And after that, well, you’ll have so many leads you’ll be spoilt for choice… but you can always find more at http://www.economania.co.uk/links-resources.htm which I continue to expand 🙂
BB
A serious question from an interested layman. I can accept governments run up debts and that it is understood that these will never be repaid, only rolled over (in increasing amounts). But is this whole fiction not based around the assumption that future generations will be larger and more productive than existing generations and so will be able to repay that debt? Doesn’t the maths (and credibility of the concept) stop stacking up if we move to a society where there is less growth (as there must be if we are to have a sustainable future) and a smaller proportion of working people?
You ignore inflation…..
And the fact that investment can and does earn a return