On a morning when I am not overly endowed with time the standout story in the media this morning is about growing poverty.
The FT is reporting that 57% of households are already cutting back on food to make ends meet. The Guardian suggests 2 million households are now facing days without food for the same reason because they cannot afford a proper meal every day. The FT also notes that this is before an expected £900 increase in energy prices this autumn, the estimate coming from Scottish Power. And it notes that people are already borrowing on dangerous short term schemes to fund fuel bills, which is a crisis that can only escalate.
As I have pointed out time and again, even if the government refuses to tackle monopolistic profit-making by energy companies, here and internationally, there is a great deal it can do to prevent rising energy costs.
It could change the basis for electricity pricing, which maximises profits at cost to the consumer.
It could cut VAT, duties and levies to cap prices.
And it could simply subsidise what is still left over, at least for less well off households, either directly or by increasing pensions and benefits.
Technically all these things are possible, and quickly. But they are not being done. Nor is there a hint that they are going to be done.
Instead, the government has decided to prioritise its finances over those of the poorest households in the UK. Let me be clear about what I mean.
This fuel price crisis will increase UK government revenues. Whenever tax is based on the price of a commodity and that price, pre-tax, goes up, the amount of tax goes up. When the amount of tax, in various forms, collected in proportion to the price pre-tax is high, and on most fuel that is the case in the UK, the increase in government revenue is significant.
So, ignoring the knock-on effects of this crisis in terms of company failures, rising unemployment, debt crises, banking crises and housing crises, most of which have yet to emerge and so are being ignored by the government, this crisis is so far good the Treasury. I am certain that is the Whitehall view right now. The Treasury will be delighted that it is getting greater revenue. Any other consideration has, I suspect, been forgotten.
But the consequence is that in the face of a cost crisis the government is making things worse for the most vulnerable. And this is not only with regard to their immediate ability to pay essential bills, it is also destroying the already vulnerable balance sheets of the least well off.
You could say that discussing personal balance sheets when people can't eat is an indication of indifference. I disagree. That would be the government line. They are indifferent to people's well-being. I am concerned for people's resilience and that means that they need a personal balance sheet with some resources still available to them on which to draw in an emergency. If you remove those reserves that cover that possibility not only does a previously manageable event become the tipping point into a crisis but the stress that this might happen does, by itself, create all sorts of trauma for those involved. The deliberate decision by the government to make those with least push their finances to the limits, and beyond, to just pay routine bills is callous.
The alternative would, of course, be for the government to increase (but not stress) the size of its balance sheet. It could simply create new money to solve this issue right now. There is no evidence that quantitative easing has ever caused consumer price inflation, and none that it will. The government could simply create the new money required to tackle this crisis in that case.
In fact, I would argue that it needs to do that. In an inflationary economy, there is a need for new money supply. That is inevitable. The government should be the agency creating it using quantitative easing. It should not be relying on new lending by banks to create that money at this time when that increases stress.
Alternatively, it could increase the interest rates it offers on savings products and bring in new money instead. It is very easy to do: NS&I could pay more competitive rates and attract all the money the government needs right now to cover the cost of the fuel price crisis. And yes, National Savings accounts are part of the so-called 'national debt', which simply makes clear that this so-called debt is entirely made up of savings accounts of varying sorts for those wealthy enough to be able to save.
So what we are actually seeing here is not just indifference to suffering but lousy financial management by the government, which is reducing its own stress and deliberately increasing that for many households to levels that are dangerous, or beyond that. As reckless irresponsibility goes that takes some beating.
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Once again, reading about China, the government view embedded there (How China Escaped Shock Therapy: The Market Reform Debate – Routledge Studies on the Chinese Economy, Isabella Weber, 2021) was that the government’s job was to literally ‘wage war’ on economic issues that made life too hard for people and created instability.
Even the much vaunted communists feared their own local party activists marching on the capital because of disgruntlement and even felt that the West was doing something right when it looked at the apparent happiness of Western society.
It’s a fascinating book BTW but the point is one that is lost on Johnson and Co: the point is Government intervention of course and that it is needed at times like this.
Instead what we have is an effective Rentier State now, dedicated to uphold the law of the markets which is to enable certain interests to win over others. The Tories either don’t care; don’t believe that we’ll ever get angry enough to revolt (people will endure); actually believe there is nothing they can do or are doing nothing to ensure that the lies about the real nature of sovereign money are upheld because of course that manages expectations.
Whatever it is it may all end in tears that’s for sure unless they are manufacturing a u-turn at some stage to save the day and themselves.
You contend that the government is reducing its own stress. What stress? It need have none. Is it psycho/social psychological stress that you are thinking of?
It will say it is reducing its balance sheet stress
I agree it has none
But that is not what it thinks
Can you link to the literature that analyses MMT and explains how the expected approach to inflation is to reduce taxes and increase the money supply?
Are there no negative impacts of this approach?
There is a thing called Google to let you do that
Richard,
I was interested in Larry’s question and your answer so went to google to try and find the answer you suggest is there?
Unfortunately, it doesn’t seem to exist. The literature available often tells us that in MMT you can raise taxes to control inflation, but not how this would work in practice. Which taxes, how much etc.
It also tells us that inflation simply won’t happen unless the economy is at full capacity. Which seems more than a little bit wrong looking at the world at large today.
In fact, I can’t find any real in depth discussion of inflation in MMT at all. It’s almost as if MMT ignores the issue entirely.
Could you point us to a link or paper which does discuss these points properly, or do so yourself?
Try again
My papers are easy to find
And exceptions are easy to note – as I do, often
But if you cant use google I really can’t help you
Yes, funny enough I didn’t find anything. All the MMT explanations seem to suggest that reducing the money supply or increasing taxes is how you address high inflation.
They usually do
Bit very obviously you chose not to read what I said – which was this was an exceptional way to treat an exceptional circumstance where m,massive harm will arise from not doing so
What I gather is that you prefer dogma to protecting people from harm
Take a fascism badge and please don’t call again
Warren Mosler has published a paper on this. He makes the point that inflation is governed by the prices that government pays rather than the taxes it levies, or the aggregate spending that it undertakes. That is why he (and other MMT economists) propose the control of inflation by government-funded Job Guarantee schemes. In times of economic hardship, such schemes reduce the average price that government offers for labour while increasing the amount spent by the government. And vice-versa when times are good.
Warren’s paper is “A Framework for the Analysis of the Price Level and Inflation”.
And I disagree with him
Right, as I suspected, you are alone on this – no credible peer-reviewed literature exists. What literature that does exist doesn’t agree with you.
And anyone that dares to disagree with you is a fascist!
No wonder you aren’t involved in advising businesses on economics!
The relationship and MMT requires development – and I am doing it
With colleagues I have grant applications in now on this, acknowledging it is basically new research
And that is how research works, although you seem unaware of it. Someone has an idea and explores it, but at the beginning, it’s just them
Thank heaven no one believes people like you or there would never have been any new knowledge
My favourite reads on economics are where there are natural experiments. It would be unethical in the extreme to do otherwise and impose a set of policies on one set and not another in the name of research and gaining new knowledge. And folly to only do theoretical research and then later deny that real life invalidates the conclusions e.g. Sri Lanka and MMT.
God- what has brought out the naysayers today?
And since when has Google been an objective source of anything?
Don’t these idiots know how Google works?
It’s a search engine that bases its searches on your searching habits. Everyone and their Dad knows that by now.
Goodness me!!!
The extent to which some people imbue the internet with the notion of ‘truth’ is amazing and rather touching in a lame sort of way.
Left and right both had goes yesterday – many more than I bothered to post, and all remarkably similar
My local foodbank demand up 55% year on year this week, just upped my donation. The reality for more and more is a grinding, exhausting struggle for survival which will leave physical and emotional scars for life.
Much, much more important is:
Talking inanely about the Northern Ireland protocol,
Bellicose posturing about Ukraine,
Sending refugees to Rwanda,
Privatizing Channel 4.
I’m a bear with a very small brain but I understand exactly what you (Richard) are saying and it makes perfect sense to me
🙂