I have already commented on Rishi Sunak's speech to the virtual Conservative Party conference yesterday, but feel it appropriate to do so again.
The speech contained, at its core, the claim that the Conservative Party has a ‘sacred duty;' to ensure that the public finances of the UK be constrained, and that the books be kept in balance. To this it was added that:
If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?
It would seem that there has rarely been such a blunt definition of what it is that divides political philosophies than this.
And note that the divisions are within the Conservative Party too.
Sunak must know that what he is really saying is that he will be raising taxes, because he can be under no illusion on spending. That is going to increase. When the Tories have already admitted that there will be 4 million unemployed he knows tax yields at existing rates are falling and that government spending will increase to cover the cost of universal credit payments. There is nothing he can do to stop that, unless people are to literally be told they have no support at all. And so what this speech was saying was that tax rises are on their way.
The interesting contrast is in what Boris Johnson is expected to say when he addresses the same virtual conference at 11.30 this morning. It is, for example, being widely trailed that he is to announce a £100 billion package for green energy, including major offshore wind investment. This I welcome, of course.
And it's also been trailed that he will announce his intention to deliver tax cuts, because that is what he thinks the country wants to hear from him.
If Johnson just announces green investment he's in conflict with Sunak.
If he announces tax cuts then the usual state of upright hostility between Numbers 10 and 11 Downing Street will be in play. These are directly conflicting policy aims.
Unless, of course, there is a reconciliation. And that is that the rest of the economy, and those who need it to support their incomes so that they might just about survive, are to be laid to waste. The government could try to impose cuts, of course. To what is hard to imagine. To what end is harder still to imagine: literally any cut now will be a move to impose real hardship. That is in the range of possibility, I suspect.
The real issue is that it would seem that these conflicting aims are seemingly irreconcilable. Rishi Sunak cannot deliver a balanced budget and keep Johnson's promises without causing massive hardship. And he cannot deliver his own promise without tax increases that are the antithesis of what the Prime Minister wants. As a result, Tory party conflict looks to be inherent in what Sunak said.
Unless, of course, that ‘sacred duty' can somehow be reinterpreted. Faith is, after all, a somewhat flexible thing.
Suppose that, after all, QE can be taken into the book balancing equation. In that case, as I have shown, then the books have already been balanced this year, since not a single additional penny of borrowing from third party sources has been required so far in the 2020/21 fiscal year as quantitative easing has covered all borrowing requirements to date. The Chancellor could, if he so wished, claim this, and meet his sacred obligation.
Or maybe investment is not the same as revenue spending after all. That's true, of course, even if not within the absurd borrowing framework used by the government. So maybe that is a way out.
Or it could just be that the Chancellor is praying for a balanced budget but like St Augustine, when considering the subject of celibacy ‘not just yet'.
Alternatively, and most appropriately, someone might just remind Rishi Sunak that has faith is profoundly misplaced, and not sacred after all. It may just be that he can be persuaded that what he thought as sacred was, in fact, just an arbitrary and human-made construct after all. What is more, it is simply wrong.
There is no obligation to balance the books, after all. There is only an obligation to use the power of office for the public good, and that means that the power to create money must be used to deliver full employment for all who want it, at which point it may well be that tax revenues will cover all spending the government desires because for it to do otherwise would be inflationary. So, to create money (and not, I stress, borrow it) would in that case be the sacred duty. And there would be no need to reverse that money creation so long as the public, or at least the private sector, wished to save and so keep those funds with the government, which is what the actual consequence would be as the sectoral balances would show.
We might even then see a realisation that this is not about ‘sacred's issues, or faith at all. It is just about observing how the economy really works and working out how to use the available levers, of which the most powerful by far at present is money creation, to deliver the goals that society has.
Is that too much to ask? In particular, is it too much to ask when this might deliver what the Prime Minister wants, even if he may well be unaware as to how to deliver it? I hope not. And on this occasion, I have to hope No.10 wins. But given the current incumbent's track record, I am not at all sure it will.
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This Government has always lied right from 2010.
Maybe Sunak is just blowing hot air talking about what passes for sound fiscal practice these days when Johnson knows that he has no choice but to keep his options open as his Government struggle to manage because of their stupidity?
Things are ran so badly at the moment, only throwing more money at it will really help – money that is literally being put back anyway after being continuously sucked out of all the relevant systems since 2010 through austerity.
As for the ‘green’ announcement today, this could just be yet more window dressing aimed at making things sound better – a good news story.
Having considered just how bad the Tories ‘peeing in the wind and it coming back at you twice as hard’ policies, one can only muse about our wonderful opposition parties and how they have been unable to take advantage of the situation.
Corbyn’s Labour and its poor economic literacy versus the Blairite ‘we love markets too’ mantra make for nothing new, nothing radical, nothing offering hope. Again we stuck in this awful circular dance of death with economic orthodoxy.
Even the Guardian – telling its readers that it is going to get behind efforts to deal with climate change – are too thick to see that the fundamental mechanics of those efforts (the money) can only be found in new approaches and cognitive maps like MMT but still refuse to debate it.
It is the weakness of the Left that has got us to this point as much Cameron, Osbourne, May, Cummings and Johnson I’m afraid.
Well, yes to most of that. And yet, quite surprisingly, this from the Guardian yesterday.
https://www.theguardian.com/commentisfree/2020/oct/05/the-guardian-view-on-rishi-sunak-back-to-the-future?CMP=Share_AndroidApp_News_Feed&fbclid=IwAR03Brb2pOakEsRaCmhW6hVnRO7_ym1KIqWommrdOhKKnvIVlpC01V7U5qg
And as Richard has pointed out, there is no debt because apparently, HMG has not issued any bonds yet!! So what we have is just a list of spending.
If that is still true, then the Guardian is also pedalling bollocks. So much for high class journalism.
It getting to the point where the Guardian is not worth wrapping your chips in or even having in the privy. They’re a waste of space.
Maybe this editorial comment in The Guardian last night is an indication that they have turned the corner – this one demonstrates a bit more enlightenment PSR. Hope so.
https://www.theguardian.com/commentisfree/2020/oct/05/the-guardian-view-on-rishi-sunak-back-to-the-future
It’s good
MMT is heard of in the Guardian
I’d say Sunak has already gone further than any Tory Chancellor in busting the balanced budget myth. It’s hardly surprising he is rowing back in a bid to to reassure the Tory faithful, who must be in a daze by now, poor souls. But what has happened is that in a few short months he has busted the myth regarding the absolute necessity for tight deficits. The country and the Tories will, never be quite the same again.
They scoffed at Corbyn’s “ruinous “pending plans ,only to find themselves spending more in 4 months than he intended spending over 5 years.
“What the pandemic has shown is that there seems no limit to the amount of money a government can create. There are obviously limits to how much a government can buy. If the state spends too much money it will drive up prices. The existence of large-scale unemployment and low inflation is evidence that the UK government is not spending enough.” (The Guardian, Editorial 5th October)
Well, well, well.
On the other hand, there is neoliberal religious dogma, in the service of the God of Money, supported by an exclusive priesthood of billionaires (served by its lay institutional acolyte, the Conservative Party [not at prayer], to do its soiled, grubby work in the real world), to whom we are all officially answerable in law, and who decree what we owe, to whom. Who decides what they owe us? They do.
There is the choice.
🙂
Surely the Guardian should have worked out by now that most State expenditure is not of the major inflationary type (are you telling me that benefits cause inflation – rhetorical and not aimed at John BTW?) – when it is actually the undertaxed millions that is lying about being used for assets (usually as loans) that has been the engine of inflation especially since Margaret Hilda Thatcher came on the scene.
How can you have inflation when the bloody economy is bleeding out anyway? Don’t you need inflation to get back to normal?
Good God!!!……………………..
The Guardian is beyond help in my view. I long for the Rushbridger days. Like the BBC, they need go and I am convinced that future progressives need to find other platforms from which to be heard.
Being progressive as far as the media is concerned these days is like being on a bloody ostrich farm with all the birds with their heads in the sand ignoring the fate that awaits them.
Really, who cares what either Boris or Sunak are promising for next year? By then the country will be in an uproar. Anything said now will be long forgotten.
In the interview with Nick Robinson this morning on BBC Radio 4 Sunak seemed to be saying that his sanctity policy of balancing the books would be put on hold for another 6 months until in his (delusionary) opinion we will be clear of the Covid crisis. Clearly medical and scientific opinion does not support this view and that we are in for the long haul with Covid and thus the economic restraints this will impose. Robinson did not really challenge him about whether he had tax increases or cuts in spending in mind to balance the books and let Sunak off the hook yet again
The OBR is forecasting £100bn plus deficits for three plus years and that assumed no second wave
“Conservative Party has a ‘sacred duty;’ to ensure that the public finances of the UK be constrained, and that the books be kept in balance.”
No change to the “corner shop accounting” that has dominated what passes for erm… “tory economic thinking” in 40 years.
Like the Bourbons: learnt nothing, forgotten nothing.
Watching re-runs of Sooty & Sweep is both more informative and interesting – than watching tory morons spouting stuff they do not even believe in themselves & if they do then at some point there will be a reprise of what happened to the Bourbons.
From the Guardian editorial cited above, Johnson & Sunak agree on tax cuts to grow the economy.
Scratch a Tory and you’ll usually find someone who’s trying to protect their wealth, or the wealth of what they consider to be their class or group. This can be seen in their willingness to put the UK economy into a straitjacket especially when the value of their wealth is threatened in troubled times. This is illustrated not only by the historical reasons for the founding of the Bank of England in 1694 but also by the consolidation of those reasons in the Bank Charter Act 1844 pushed through under the Conservative government of Robert Peel. In that act two forms of “straitjacket” are defined:-
“Although the Act required new notes to be backed fully by gold or government debt, the government retained the power to suspend the Act in case of financial crisis, and this in fact happened several times: in 1847 and 1857, and during the 1866 Overend Gurney crisis.”
https://en.wikipedia.org/wiki/Bank_Charter_Act_1844
(We need to understand of course that the use of bank notes was one of the primary financial instruments for purchase in use in the UK’s 19th century economy.)
So we know the reason why the Gold Standard was abandoned was that it was destabilising both internally within a country (high levels of unemployment resulting in social unrest) and between countries (countries seeking to build empire and especially control those where large quantities of gold were available for mining). Gold was a near perfect straitjacket if you wanted to apply a throttle to maintain the value of your wealth.
https://spartacus-educational.com/Gold_Standard.htm
Withdrawing money from active circulation in times of crisis or uncertainty through the issue of government securities (treasury bonds or gilts as the British call them) is of course another throttle.
Furthermore not only do we know Tories will abandon the use of a “straitjacket” or “throttle” in times of financial crisis we also know they’ll abandon it in times of war:-
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
https://www.bankofengland.co.uk/-/media/boe/files/archive/ww/boe-1914-1921-vol1-chapter3.pdf
See pages 9 and 10 in Chapter 3.
Note also the role played by Montagu Norman in reference to these two last links as well as the “spartacus-educational” weblink:-
https://en.wikipedia.org/wiki/Montagu_Norman,_1st_Baron_Norman
In summary we should now be wise to the behaviour of Tories both in normal times but especially in times of crisis when they’ll resort to a Financier of Last Resort followed by a crude form of Monetarism (the government must balance its books) despite Milton Friedman’s Monetarism being discredited for not understanding the reserves based money creation and settlement system but also the decimation of industry in the UK under Thatcher.
Thanks
What I heard tonight in bungling Boris’ speech to the Twatty Party was that fiscal policy would be used to fight Covid-19 but that the Government would still shrink the State. This means more privatisations and sell offs no doubt at fire sale prices (I bet the Land Registry finally gets the boot and you’ll be paying well over the odds for copies of deeds etc., in the future).
As Helen suggests only the Tories could stay loyal to their idiotology at a time like this because they are the real extremists in our midst and have been for some time. They will not be happy until they get their Thousand Year Thatcherite Reich, that is for sure.
And thanks to people like the BBC, Ms Viner and Palid Blue Labour they are likely to get it.
May I be the first to congratulate you all.
Let’s imagine that the Chancellor has some knowledge of banking.
Say he understands that when a bank makes a loan that loan is an asset on the balance sheet of the bank. Let’s also assume he knows the bank doesn’t need cash from depositors sitting in the vaults to make that loan. This is cash and asset creation.
Let us also imagine that there is a bank that is willing to lend money to the Government. We could call that bank The Bank of England. When this bank lends to the Government this lending would represent an asset in the accounts of this bank. Now imagine that this bank is owned by the Government in some way. Let’s say for convenience as a shareholder being something our bank knowledgeable Chancellor would understand. For accounting purposes the accounts of both entities could be run separately.
Let’s also assume that the Government also has an income stream like a wage but on a huge scale. Let’s call that taxation. That income stream is very secure over the long term. The Government can raise or lower the rate this income is collected but the income is guaranteed over an almost infinite period of time.
The bank, in this instance The Bank of England, can be pretty sure that it is going to get its money back at some point. The bank knows the debt is secure. Banks are always happy to lend to rich people at low rates of interest over long periods because the bank knows the debt is secure.
The Government knows that it is able to repay, should it so wish, some of the principle at a future date or to roll it over indefinitely.
If this was how the world works our Chancellor would be very comfortable borrowing from this bank and would be unconcerned about his ability to pay as the borrower nor would he be concerned about the security of the loan as the shareholder. The need to balance the books would be satisfied by being both borrower and lender.
And guess what – this is the way the world is. Even a household explanation works when you own the bank. Rishi Sunak must understand this. He comes from a banking background.
I am not sure ‘must understand’ comes into it
Just heard Evan Davies on PM interviewing a Tory about the economy. It was clear that Davies is yet another pundit stuck in the binary assumption that there must be either tax rises or cuts. Given his education and career so far, I suppose one shouldn’t be surprised.
Perhaps we should set up a charity entirely devoted to bombarding all these people with copies of The Deficit Myth.
Evan Davies books suggest a quite right-wing thinker
For what it is worth, his first job after university (a First in PPE, naturally) was at the IFS, from where (apparently) he was seconded to help design the Poll Tax (!)
I love PSR’s phrase ” this awful circular dance of death with economic orthodoxy”.
Thank you, but I’d rather not be saying it at all to be honest.