There was a lot of debate on fractional reserve banking on this blog earlier this week. Some still maintained, despite all the evidence to the contrary now, that banks need deposits before they can lend. They don't: the loans come first, and that now radically transforms our view of savings, and much else.
As I have also argued, this is also the precursor to the new view that is required of tax and spending. For decades Labour has been accused of being the party of tax and spend. Except that's impossible because no government with its own currency taxes and spends. They always spend and tax. How do I know? The proverbial chicken and egg conundrum provides the answer.
First some simple facts have to be understood. The UK government requires that you make payment of your tax in pounds sterling. Nothing else will do.
Second, where do those pounds you have to pay in come from? If it's notes and coins the answer is obvious: the government permits their production.
But what if the currency in question is just an entry in a bank ledger? Here the answer is only slightly more complex. As the Bank of England admitted in April 2014, all deposits in bank accounts are the result of loans made: the loans create the money that is then deposited. And who permits banks to make loans? The government does; a right it jealously guards because it preserves its right to control the creation of money the right to create money. In other words, commercial banks do create money, but under licence from the government.
And how did the government start this ball rolling? Did it just create a pile of money and give it to people so they could pay their tax? Hardly: that would have been pretty pointless, wouldn't it? Instead they spent the money into existence. Notes and coins existed because the government had bought something with them, and promised to make repayment of the debt they represented (which notes still say they will) on demand.
In practice they discovered they did not have to fulfil the promise. They just demanded payment of tax instead using the notes and coins they had created. When the tax was paid the debt was, in effect cancelled, even if the tokens (money) were then used to start the process all over again.
So does government tax and spend? No, and it never has. Governments with their own currencies always spend and then tax.
Realising that is staggeringly important.
First it means that you do not need tax to spend.
Second, it means that the amount of tax you can collect is largely dependent on the amount of spending a government undertakes, which is the reverse of normal logic. So if you want to answer the question "where does the money come from to pay for this?" the answer becomes " from out of what's just been spent."
Third, it means that tax is not about paying for spending at all: it is instead about cancelling the impact of government spending to prevent inflation. This means that so long as there is little or no inflation there is no reason at all for a government to balance its books.
Fourth, in that case tax has to also be instead be about fulfilling social policy in all its dimensions.
Tax is in other words something very different from what most people think it to be. And the last thing it is about is paying for spending.
When we realise this the UK (and other countries) will be liberated to achieve its potential. Until then outmoded ideas will constrain us in a wholly unnecessary economically distressed state because we base our whole macroeconomic thinking on something that is fundamentally untrue.
I wait for a politician to stand up and say it.
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Ah, the joy of tax
But if you create a currency to be shared by several countries (let’s call it the Euro) over which no one country has control. What then?
The joy is decidedly diminished
And disappears for those who operate like local councils
good post. like the use of the word “decidedly”.
I wonder if you can explain how your model determines excessive spending – if government spends more than an economy’s capacity then the excess is inflationary and the excessive money supply is leads to speculation and asset bubbles – regardless of how much taxation is imputed to reclaim it? Does this suggest a dynamic taxation policy pegged to the money supply would be most efficient for ensuring the best social income of govt spending/investment?
Does it not follow that considering that if government is not limited by its taxation take and is only limited by debt issuance capacity/bond market pricing then it needs even more discipline to ensure it spends/invests the right amount?
Does it not undermine the argument that offshore financial centres suffer a lower tax base through declining taxes because of secrecy policies? Surely Channel Island economies etc. could just spend lots more to cause higher tax take? Or is your argument that offshore business crowds out other economic activity so that regardless of spending tax take/money to spend is lower? If not I couldn’t see the basis for the offshore business bankrupts financial centres argument.
I am struggling here because I simply cannot follow your logic, or maybe your three separate logos as the paragraphs appear unrelated
A) What it suggests is that fiscal policy linked to employment policy is required. It’s economic reality that is the constraint: money supply is a consequence of policy, not a driver of it
B) Debt issuance is not necessary in an economy: QE proved that. In that case bond markets are not a constraint. Government does them a favour by issuing the product they want. You have your thinking entirely wrong. Only full employment is a constraint.
C) The Channel Islands et al do not have their own currencies in the main, or if they do they’re pegged e.g. to the dollar. So they can’t issue money at will as they don’t have that option: every pound the Channel Islands issued has to be backed by a pound sterling or it is worthless. And that is the constraint.
You end up at the mercy of the European Central Bank like Greece currently is. And when you don’t control your currency you are forced into taxing then spending too because you don’t have the sovereign right to create more at will. I think Gordon Brown recognised this fact when he came up with his ‘tests’ for joining that were never going to be passed.
It didn’t have to be this way. The original proposal for the Euro also included a federal fiscal capacity where the ECB would fund deficits across the currency zone, but the neoliberal groupthink at the time resulted in that bit disappearing from the final text.
It’s why MMT authors generally believe the Euro is inevitably doomed to fail, because the ECB/Troika keeps insisting Greece’s debt is viable while simultaneously extracting money from their economy via austerity and then wondering why growth doesn’t happen. The EU can’t kick the can down the road forever.
Can you tell us more about the changes to the original proposal for the euro? I seem to recall Will Hutton in one of his books saying there was a way the ECB could distribute some money to the member states, possibly instead of or reducing the contributions they make. I think it involved seigniorage -about which I know little more than its definition.
Except the Neo-Liberalism is getting watered down in the interests of political stability:-
https://www.theguardian.com/business/live/2017/jul/20/markets-ecb-meeting-mario-draghi-european-central-bank-stimulus-business-live?page=with:block-59709914e4b02c8c10c42596#block-59709914e4b02c8c10c42596
That would need the courage to not only say it, but to withstand the vicious attacks from the billionaire-owned media control-freaks…
You may have to wait..and wait..
Funny that you should post this (for me at least) – I was reflecting on this point this morning driving to work after explaining this to friend last night.
She was moaning about being taxed (and why not – she has at the age of 53 just overleveraged herself by purchasing yet another overpriced house which needs loads of work doing to it).
In the end I had to tell her that she was just thinking like a Tory and that she needed to use the research skills she had as a physicist to get to the heart of the matter. But like a good post-Thatcherite middle class girl she is her knowledge is only to be used to enrich herself rather than achieving a deeper understanding of the world around her and those she inhabits it with.
One complaint I do have about the ‘debate’ is the lack of clarity there is in the public realm about where tax is spent. I understood that tax that is collected is then used to fund transfer payments such as non-inflationary things like benefits.
But as a public sector worker, I believe I am paid via a grant to the local authority from the Government in order to fulfil its national policy objectives.
People tell me all of the time their taxes pay for my job and my ‘gold plated pension’. But I see my job as being paid for by Government money – not tax payer money. I am sure I am right but………….?
You are right
I am working in the data
There is really no such thing as “taxpayer[s’] money”.
The money that is levied in taxes belongs to the government, not the person or entity who pays it.
That’s another revelation that would take a brave politician to vocalise!
Agreed
Mr Shigemitsu,
In the middle ages, when the serfs toiled 150 days a year on the lord’s land, it would have been a brave serf who vocalised “That toil belongs to the lord, not the person or entity who did it”.
“In the middle ages, when the serfs toiled 150 days a year on the lord’s land, it would have been a brave serf who vocalised “That toil belongs to the lord, not the person or entity who did it”.
Oh, no doubt about it!
But that has absolutely nothing whatsoever do with taxation and the nature of government issued fiat currency.
@ Cofe Baker
Apples and oranges, mate. The toil of the serfs you refer to IS their labour – theirs to offer or withhold… theirs to create or not, as they please.
The tokens they receive in return for their labour actually do belong to the lord. It’s an IOU. Now, they can pass those IOUs on to third parties in exchange for goods and services, but if they holder of such a note at any given time wants to realise the value of it, they’d have to go to the original author, i.e. the lord who issued it in the first place. So the IOUs belong to the lord in question.
Of course, this example loses something in translation, because the “promise to pay” made by the lord in the middle ages would have had a gold value equivalent. Nowadays there’s nothing. It’s the promise itself that is of value.
Make sense?
@Pilgrim Slight Return:
“She was moaning about being taxed…”
I know you know all of this, of course, but perhaps what you have to ask of her is to imagine a Gov that spends £x amount a year into the economy, each and every year (on whatever priorities it chooses).
Because money does not stop at first use, if there were no taxation, then the following year there would then be £2x sloshing around the economy, chasing roughly the same amount of goods and services, £3x by the third year… and so on.
The massive inflation that would result would rapidly erode the value of money – “taxing”, in essence, everyone’s ability to spend as previously.
So, either way, you lose spending ability – whether by taxation, or less controllably, by inflation.
What taxation does, is to drain off excess money, so that the whole process can continue, hopefully ad infinitum!
Taxation, is therefore, doing everyone a massive favour, by saving them from the deleterious effects of massive inflation.
And, counterintuitively, we all, including your friend (and our Gareth from the other day) owe the taxman a debt of gratitude, as a result!
MrShigemitsu
Good post, I like this and I’ll be using it myself on the next person I hear moaning about taxes.
Mr Shig’
In these matters I am always learning – in a a state of ‘knowing’ rather than dealing with a collection of ‘knowns’. That’s why I continue to come here.
And although I feel conversant with the principles you describe, I did not have the eloquence to put them across as you do until now.
Thank you.
I find it simplest if you substitute “invest” for “spend”. Then you can progress to a sensible discussion of what is a good or bad investment. Tax is the dividend on our government’s investment. If it invests well, it gets back more than it invested.
It is also crucial to realise that senior personell in the financial services industry know and understand how our money is created and what tax really is. It is their knowledge and privileged position in the money creation system that makes them so rich and powerful.
They have a lot in common with other members of the elite e.g. inflation of asset values helps all owners of assets. However, the financialization of our economy is hurting a lot of businesses really more than it is helping them, even if they don’t realise it.
Small and medium sized businesses owners are a good target for education about money creation and tax because they are numerous and have control over significant resources in aggregate and could benefit as much as private individuals from a sea change in public policy re. spending and taxation.
Yes governments have to spend money into Existence, for us to pay tax.
However… And, this is the chicken and egg time. If the government didn’t demand tax from us in the first place, then people would not exchange goods and services for these ‘Tax paying tokens’ called money.
So Tax Demands come first.
:-p (just to be awkward).
You are suggesting we can live without government?
I think you may be wrong
And it will always spend
I think you are wrong
No, quite the opposite.
I’m saying that government demands for tax is the only thing that gives money any value at all. It is this demand that must come first. Without that demand ,then the government wouldn’t actually be able to spend Fiat currency because no one would want it.
So its like:
Government Demand tax –> Government spend –> People pay tax
(causing money to be valued) –> money into existence –> cancelling demand
Wrong
They spent first – mainly on paying armies
Their promise to pay was good
The soldiers spent their pay
The recipients paid the coinage back as tax
But no I King in history saved up and then said “who shall I have a ware with?” They went to war first, issued the money and then taxed it back
The demand for tax never came first
But the coins got their value because they were all that could be used toi pay the tax
Richard,
Isn’t your comment on wars (and kings) the key to your broader point on spending then taxing – the one that might just help the voter/joe public/BBC journalists?
No government, no King, EVER saved up to fight a war whether it was an aggressive one in the Holy Lands or a defensive one against Germany – they spent first, as much as was required (without the BBC ever asking ‘B B But how are you going to pay for it?!’) then taxed back.
If it is true for War, why is it not true for Social Care, or schools and hospitals?
(You might care to address two questions/points buried deep in the public memory – one is any film about Robin Hood because that involves the Sherriff gathering taxes from the poor of Nottingham to pay for the Crusades, and the other is ‘With a fiat currency why did we have to borrow from the USA?’ (did we have to pay and borrow in dollars – ‘your money ain’t good here!’ – for stuff we didn’t have the capacity of raw materials to manufacture?)
Noted!
@ TonyW
MMT argues that tax gives fiat money its value but I am not convinced tax is really fundamental to value (it is however fundamental to economic stability). 40% of adults do not pay income tax, another 30% are on PAYE and most do not really notice they are paying VAT but still they believe that money has value. Only those that fill in tax returns obsess about tax. You could engineer a fiat money circuit where all tax is deducted electronically on each transaction and only net amounts are reported so no one notices that some money is going back to source. It would still work because people want to believe that it works as it is incredibly convenient and useful to do so.
I’ll muse on that Charles
I love the line, “no King ever had to save up to go to war”, but we should remember that this does not mean that the King could always avoid financial difficulties.
A sovereign state’s power to both spend and tax comes from its monopoly on the use of legally legitimate force which in turn stems from their control of the most powerful armed forces in the country.
So, if the state so wishes, it can acquire anything in the country by force of arms. That’s what comes first.
And no one lasted long on that basis
And it’s no longer true
So it’s not really worth saying
Richard:
While it is true the law and the court system provides a framework for control over state violence that very system itself is ultimately enforced by violence. It also wouldn’t take that much for the government to override these checks and balances and impose martial law.
I’m no libertarian, we need the state’s democratically controlled power to protect us from any private group seizing that power and wielding it unilaterally to further their own interests.
It is therefore worth stating that physical force is the ultimate backing for a fiat currency. It’s worth recognising that because if we find ourselves without democratic control of our fiat currency then we also will cease to have democratic control of the state’s use of violence.
Basically the courts have to enforce property law and if the owners of property are only such because of their seizure of state money creation powers then they are effectively hijacking state sanctioned violence to oppress the rest of us.
It is also worth noting because it counters all the libertarian ideas that we could somehow do without the state by using crypto currencies or commodity money. That whole line of reasoning is just cover for private groups to seize the state’s powers for themselves under the guise of freedom for all.
Max Weber defines a state, in part, as an entity that succeeds in holding the exclusive right to threaten or use force against the people living within its territory.
https://en.m.wikipedia.org/wiki/Monopoly_on_violence
That is an opinion, not a proof
No, it’s a circuit, there is no beginning or end, no coming first. We can only talk about the direction of flow which starts with spend (or invest).
See
http://www.progressivepulse.org/economics/economics-101/a-brief-history-of-money/
or David Graeber’s excellent book Debt: the first 5000 years
for the origin of the sovereign money circuit. The Sovereign had to mint the coins first because collecting tax.
Precisely
Indeed Charles
would be nice to extend the flow model by adding a little resistance and capacitance (or even inductance). I believe the LSE used to use a hydraulic model for years, but would be easy now to generate an updated model.
A link to David Graeber’s book (plus some other recommendations) is available here
http://www.progressivepulse.org/economics/
“So Tax Demands come first.”
Oh really?
So how do you pay any money in tax if you have first received any?
And Euros.
You can pay UK taxes in Euros.
It says so on HMRC’s website.
Would you like to start again?
They’ll offer a conversion facility
But they never ask for payment in euros
You’re settling a sterling bill
ANd it always will be
So your point does not stand
Seems odd.
You say ‘nothing else will do’ only sterling.
Mr Fisher claims you can pay in Euros.
You then say his point does not stand because…well…not quite sure.
“they will never ask for payment in Euros” But they accept it.
HMRC are not offering a ‘conversion facility’. They are accepting Euros. They do not convert my Euros and give me back sterling which I give to them. They accept Euros.
Why can you never say “I wasn’t clear enough” or “I didn’t express myself properly” or even (God forbid) “I was wrong”?
It’s one of your most annoying traits.
But I wasn’t wrong: HMRC will accept euros to settle your sterling bill, but the exchange risk is all yours, which is precisely why most people use sterling, which proves my point that tax ratifies the value of the currency
So I was right all along
Annoying, I know
I thought you could pay your tax bill in euros, for example?
Try
“Bruce Jones says:
I thought you could pay your tax bill in euros, for example?
Richard Murphy says:
Try”
If Mr Jones wanted to try, he’d need this information, which is on HMRC’s website:
Q. Which tax and National Insurance liabilities can I pay in euro?
A. You can pay any tax or National Insurance liability in euro, and we will convert the payments into sterling.
You can pay by:
– Bacs Direct Credit, Internet or Telephone banking
– CHAPS
– Euro denominated cheque
– Euro notes (HMRC offices at Ports and Airports only)
So if Mr Jones wants to ‘try’ as you suggest, it seems that he will be successful and can even pay in Euro notes!
I’m sure you must be pleased that this issue is now settled.
It is settled: I am right
They will accept euros at the prevailing sterling rate because the bill must be paid in sterling
The bill is not in sterling, as I said. And it is sterling you must buy to pay it. All HMRC are saying is they will sell you some sterling, but it’s the sterling that pays the bill
You could pay your tax bill with a credit card from a foreign bank. The amount charged to you ultimately pay might be denominated in a different currency, but it would be calculated from the Sterling value and HMRC would receive the payment in Sterling.
So you wouldn’t effectively be paying in Euros (or another currency).
Don’t the old beliefs on money (that government does have to tax to spend) serve a restraining function? Isn’t it relatively easier for treasury ministers to be held to account by asking the question “will the amount of money you’re taxing cover expenditure?” than by asking whether the balance of spending and tax is likely to cause unacceptable inflation? If government stops believing it ever has to balance its budget to act prudently, isn’t the natural confidence of treasury ministers in their ability to control future events along with the pressure from other ministers to spend likely to lead to unacceptable inflation?
I am not sure where to start with this one?
How about saying a beleif that of a minister broke a budget they’d be strung up might be useful is, I think, a good comparison? It’s as at least as absurd as our claim, not least because there is no evidence in recent years that running deficits leads to inflation when there is underemployment, as we have had for a long time
So what you’re really asking me to do is believe in nonsense that reinforces a myth
I don’t think I’ll be doing that
“Tax and spend” is a falsehood.
The government can create its own money, via the Bank of England, so it doesn’t need to collect tax before it can buy any goods or services.
How will we pay for nurses’ pay rises and nuclear submarines?
1. Place the order (promise to pay) and create the money
2. Buy the goods (transferring the money into the economy)
3. Collect tax on all subsequent transactions and money will flow back to the government.
Which means…
Government purchases pay for themselves over time by a process called geometric sequence: http://www.progressivepulse.org/economics/how-are-we-going-to-pay-for-it/
Robert Seaton:
The problem is that the government running a balanced budget is, usually, the least prudent thing it could possibly do!
Because the government sector’s debt is private sector savings and the private sector has a very strong desire to save it is almost always the case that government running a balanced budget causes aggregate demand to be too low and this leads to recession.
MMT makes this all very clear and I strongly recommend you seek more information on the matter. It has certainly opened my eyes to reality in a big way in recent months.
This principle is perfectly illustrated by LVT. Instead of relying on a contribution from developers towards infrastructure development (the totally corrupt Section 106 Agreements and Community Infrastructure Levy) LVT funds the investment up front which increases the land value, which increases the LVT revenue, thus leading to a virtuous circle. Anyone wanting to know more about the effects of Section 106s and CIL should view 10th July Dispatches programme.
But the bill is in sterling: it is never fixed in euros so all you’re saying is HMRC run a conversion service
They bill is in sterling and so, ultimately, is settlement
Actually, you’re wrong: the payment is in sterling. They just agree to convert it for you
Could I ask the group a couple of related questions for my understanding?
1. you’re saying that any and all deposits are the result of loans. I can’t figure out how this works for, eg, welfare payments from the govt?
2. Perhaps this is the same question. Around 97% of money is created by commercial banks, but at the same time the government spends £750bn or so into existence every year. £750bn does not appear to be 3% of all money created in a year, so what am I missing? Thanks!
All deposits have ultimately to be created by loans
Once created they can be reallocated, that is, be transferred between people
And new government money is so small because of a) tax and b) gilt sales
Steve T says: Around 97% of money is created by commercial banks.
This is not correct. In the case of the USA, 20% of money is created by the US government according to economics professor L Randall Wray.
In other countries it could be as high as 30%.
You don’t want to believe everything the neoliberals tell you.
And all money in the UK is made under licence from the government
Where have my comments gone?
Trashed for the obvious reason that you are not Dicky Tayter
All future comments will go the same way
You say taxes must be paid in sterling. Putting aside that payment can be in euros, what about inheritance tax, which can be settled in kind or by providing public access to a building or artwork?
No it cannot be paid that way
HMRC can come to an agreement in settlement that way
The tax payer cannot pay that way
And you are getting rather boring: desperately so when you are obviously wrong in euros for reasons already explained
So you are more concerned with whom I might be rather than what I say is true or false?
This space is reserved for those who treat it with respect
It is quite clear you have no intention of doing so
“it is instead about cancelling the impact of government spending to prevent inflation.”
Surely it’s about cancelling the impact of government _licensed_ spending, as the vast majority of spending or rather money creation is not by the government but by banks? also about controlling where and by whom money can be spent.
“I wait for a politician to stand up and say it.”
And here is the problem, any politician that does so will be ridiculed as economically incompetent. I think it has to be a case of a staged approach, where the focus shifts to net government debt rather than just government debt.
Perhaps the investment bank idea is aimed at making it clearer by bringing the debt and the spending under the same umbrella where they can simply be cancelled out as entries on either side of the balance sheet, rather than one belonging to the treasury and one belonging to the BoE?
In my opinion QE has ended the Posituve Money myth that 97% of menu is created by private banks. That is clearly not true anymore.
Doesn’t that then contradict the assertions that loans don’t required deposits (money is made from thin air by banks) and that we don’t have fractional reserve banking? (there is no constraint on the amount of money that banks can make other than the ability to provide sufficient and relatively small security for reserves they need to do their inter-bank business, assuming they borrow reserves from the BoE rather than each other).
Are you suggesting that banks in effect don’t make money out of nothing, or rather that the money they do make is by far outweighed by the money that the government makes out of nothing?
QE is a relatively new thing in the UK, was the case different before 2008ish?
If I understood any of your logic I’d reply
But I don’t
All I am saying is that all money is made under government licence because you can’t run a bank without one
That has nothing whatsoever that I can see to do with any argument on fractional reserve banking, which does not exist
And all I said is that QE proves that the supposed 3/97 split does not exist
WHat you’re trying to extrapolate from this weekend I can’t see
Have I got all my ducks in a row?
Government (G) issues promise to pay currency into the economy.
This is returned via tax such that the growth of currency in circulation does not create inflation – more money chasing the same amount of goods and services.
Due to the multiplier effect – with average tax take at say 30% – if the recycling continued with no other influences, and if the net of tax recycled amounts were spent and not saved, according to my crude spreadsheet, after say 13 cycles G would have recovered it’s original £100 (pretty much) but over £300 would be circulating in the economy.
On the face of it this would be inflationary? But other factors must be influencing the supply of money in circulation. My guess is these are:
1. Savings
2. Diverted profits – offshore hoarding
3. G sells gilts to mop up money supply
4. Money is spent into other juristictions – more imports than exports
5. Others… tax take must be higher than 30%?
What am I missing…?
The economy has more goods and services circulating
So prices remain constant
Bob –
The £300 you identify as circulating in the economy isn’t actually circulating in the simple model you’re running. The multiplier reflects the amount of income generated by each spending transaction. not an increase in the overall money supply.
Gov introduces £100 of new spending (through whatever mechanism or agency). That’s taxed at 30%, so £70 is available to save or spend. If it’s spent, it becomes someone else’s income… and so is taxed again at 30%… so the tax take is £21. After 2 cycles, the income total is £170 and the tax paid total is £51.
Person A had the original £100… tax was collected and the remainder paid to person B, who was also taxed. BUT! The total amount of Gov introduced money swilling around in the economy is £49 at this stage… that’s the disposable income that B has.
The key is to remember that nobody other than Gov can create money (For Gov read “anyone whom the state empowers through license, i.e. banks”). Everyone else just moves it around.
Does that help?
I’ve learnt loads from the disucssions on this particular post. Richard would it be possible to reconfigure your website so that blog pages don’t get lost (or at least become harder to access) as soon as they get bumped off the end of your Home Page to the ‘Next’ Page? Or have a contents , archive , popular posts section on the right hand side , or similar. There is a wealth of information to be tapped into from this site, and it seems a shame newcomers have to tune in to it at the opportune moment to access it.
I have been wondering how to do this
I may have to rethink how this all works because I have the same problem finding stuff
Richard, thank you for the trouble you are taking to make this knowledge available. I believe it is the simplicity of the system that is confusing, because the Financial sector as a whole
deliberately complicate the system of finance in order to hide what it is they are actually doing…. money creation by comparison seems apparently unreal.
MMT describe most all money as a simple record, when money is loaned a record of the loan is created by the bank as a deposit account, and simultaneously opens a corresponding deposit at the Bank of England, as the debt is paid off so the balance is reduced in both records simultaneously until finally paid off, and described by the Bank of England as money being destroyed. So money is created out of nothing and destroyed as it is paid back, i.e. the record shows a zero balance in both deposit accounts.
The 3% of course is money issued as notes and coins.
It is clear to me that whilst this information is now being placed into the public domain, certain people, for political reasons seek to muddy the waters by introducing diversions such as how do you measure GDP, inflation, etc?
In truth GDP is a measure, what constitutes the items making up that measure are irrelevant from an historical concept as, so long as the items remain the same, so does the consistency of the values. therefore presenting a true record. Neo-Liberals like to keep moving the goal posts in order to hide comparisons with the past.
Government spending from my point of view could be greatly simplified if we use the analogy of the public need for a bridge, the government that has no constraint on spending, can issue money as required for a local authority to pay workers to plan and build the bridge, buy the esential building materials, and on completion the state is left with a useful public asset. Today in the Neo-liberal world we live in, a contractor is employed who borrows the finance to build and on completion we pay a toll each time we use that bridge.
It is apparent to me, that not only does it make financial sense, but retains control at all levels with a positive return to the state, meaning society, conversely people never own what they have produced.
Neo-Liberals that talk about the efficiency of the market forget, whether it is privately constructed or publicly, the very same people are in involved. In other words people are the ones who create the wealth and it is the distribution of that wealth that falls into contention, the private sector is not currently delivering what society needs, and therefore the government should step in to fill that gap, failure to do so ends up with those blaming the victims of this legacy for the abject failure of a corrupt system.
We have all the money we need to create a functioning society, Neo-Liberal politicians deliberately restrict that supply of money in order to asset strip the state and return power and wealth to the few at everyone else’s expense.
Money in a fiat money system is created from nothing,the economy is then regulated solely by taxation and interest rate policies.
it really is that simple.