My column in The National yesterday addressed one of those thing that profoundly annoys me, which is politician's referring to ‘taxpayers' money'. As I said:
The column is available here.
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Every single political party in the UK is what I would call a “Money Luddite” in that it has no official explanation about how the country’s monetary system works that makes sense (and that includes globally too) and consequently they repeatedly screw the UK’s economy up. In particular they fail to incorporate the role that productivity increases have on inflation. The following paper helps explain this, note in particular the statement that in the past 30 years US workers have become 60 per cent more productive (OECD statistics):-
https://www.levyinstitute.org/publications/the-unbearable-weight-of-aging
I think in a previous post my suggestion that this blog should seek the official explanation from each UK political party how they believe the UK’s monetary system works would especially highlight that it was Luddite in that an explanation of how productivity affects the amount of money created would be missing.
Note too in the above paper how the argument relates to government spending on tackling the effects of climate change.
I am thinking about this
1) Does this mean, we are all Malthusians now?
2) This brings AI to centre stage; not just in terms of the current effete anxiety of white-collar workers about the threat of AI to them. AI is highly dangerous and requires strict regulation. Nevertheless, this paper implies we must rely on AI to free human endeavour; largely to focus direct human effort on the care of the young, and the old.
AI offers the potential in robotics to eliminate much of the repetitive drudgery, the endless chores of life, disguised as ‘work’; in order to free more people to care for human beings. For the first time, to focus human effort on human-centred work. That would be a first for civilisation.
Unfortunately it cannot be said enough, such is the stain on our reality that is Thatcherism.
It’s high time Thatcher and Thatcherism should be seen for what she was and it is – a Luddite and Luddism!
Perhaps on reflection I should have said “economic Luddite” and “economic Luddism” with the latter still in play by all the UK’s political parties and destroying the economy!
It is surely not correct to say that anyone “owns” the money they possess or use? In what substantive sense can you say that you “own” an IOU? The issuer owns the IOU. The whole point of the IOU is that the issuer and owner of the IOU has an obligation to the ‘possessor’ of the IOU, in order to redeem that which he owns.
In addition, it is the right of the issuer of the money-IOU to compel repossession of their IOU, through compulsory taxation; and by decree. In this sense also the possessor of the IOU cannot be said to “own” the IOU from which they may both legally and compulsory be dispossessed by the issuer, through taxation.
This means the issuer of the currency is in a unique position. It is called sovereignty.
In my view the sovereignty angle is 100% correct.
Another ‘inconvenient truth’ to add to the long list of deathwish behaviours our species has been generating for far too long by Neo-liberalism (along with carbon pollution for example).
Well said! Hyman Minsky used to talk a lot about taking or making a position in money to his students and in his books and papers and that’s what it amounts to for human beings a right to have a position in a money based transaction process operated by the public and private sectors with the state as top guarantor and therefore guardian in keeping the process running.
It is also the implication that only taxpayers have a right to decide how money is spent that annoys me. NO, everyone in society should be part of the decision.
Journalists also use the term a lot so people the ordinary public think it must be a true description. I noticed Cameron using the term much more than any previous PM. I thought it was deliberate so it would sink into the subconscious and produce an automatic response to any discussion of public spending.
Many taxpayers feel outrage at govt waste and corruption because they feel it is, in some sense, “their” money. I think this outrage is healthy, and that it would lose a lot of its driving force without this feeling. We don’t feel the same about money paid to local govt, and peculation there is just greeted with a shrug and a “well, they’re all at it. What can you expect?” So perhaps there is a useful by-product of people’s misunderstanding of taxes? I, and I think you, don’t want to live in a country where govt corruption is just seen as normal.
But it’s not ‘their’ money. Outrage should not depend on false notions of ownership
Practically, everyday, money is the token that gives the holder access to (and more or less control over) goods and services they need or want. Taxation diverts control of some of those tokens and the resources they can command from the individual to the state.
That is a long way off being the whole picture, for sure, but it’s the only bit of obvious and immediate relevance except to practitioners or amateurs of politics, economics, and related interests. The questions of formal ownership, of who generates the tokens and under what rules, simply do not arise; nor, most likely, the concepts even to discuss them.
But professional politicians need to make sense of it
They cannot be excused for not doing so
Mr Thomlinson,
Presenting ignorance as a virtue is a dubious adventure, and it is not enhanced by the gratuitous embellishment of a smooth patina of faux wisdom.
“But professional politicians need to make sense of it”
Sure. But for a politician ‘making sense of it’ has to include an understanding of where their voters are coming from. Which is probably not an abstract interest in economic theory.
Politicians, like all professionals, have a duty to explain.
Professional politicians should not rely on, let alone promise, ignorance
Mr Thomlinson’s position usefully reveals how we arrived at the comprehensive mess we are in. Using ignorance, falsehood and misinformation for political advantage expresses the rules of a Party-driven FPTP, and deeply unreformable tribal parliamentary system; or to put it in the terms which Mr Thomlinson appears to support:
anything goes, as long as you can ‘ get away with it’. The single ‘no-no’? Don’t be found out.
Very true
The professional politician, and I suggest anyone aspiring to advise or infuence them, has to reckon with the practical fact that from an everyday perspective money is what you use to buy stuff and that anyone taking it away from you is doing you no good. Within its scope, that is a necessary, reasonable and sufficient understanding. The question to me is how to create a bridge from there to the very different – and much argued – logic of money operating at a system level. I think that’s difficult, and that dismissing the entirely reasonable absence of a different, specialised, and much more abstract perspective as (vicious) ignorance does nothing to get over the difficulty.
Wow, what a small word view
@JSW
You claim that I endorse the view that “anything goes, as long as you can ‘ get away with it’. That, if you believe it, is a figment of your imagination. I’m not expressing a moral view at all, merely a pragmatic one. There’s a big leap of understanding to make if you are going to convince politicians, and through them their voters, that the ideas and analysis represented on this blog are saleable political commodities. You won’t do that by shouting abuse at them, however irritated you may be by their apparent intransigence.
@RM
“Wow, what a small word view”. I’m not sure if that comment is merely a gratuitous discourtesy, or if you are making the same error as JSW seems to and assuming that because I try to express a possible point of view which seems to be highly relevant to actually getting your ideas implemented that is the view I myself hold. It isn’t. Nor have I at any point suggested it should be the basis and limit for political action. But if it does exist – and we maybe even agree that it does – then that is a fact that has to be reckoned with.
I thought it was patronising to suggest that most hold that view. I am sure some do hold it. But I believe better of many more people than you seem to. That was what I was expressing.
Mr Thomlinson,
Your “practical fact” is neither practical, nor a fact. The more you have written the more obvious it becomes that you appear to know precisely nothing about the last 300+ plus years of British economic and monetary history. Fortunately we no longer subscribe to your bizarre interpretation of the world, because we slowly learned to move away from the primitive casual recklessness you espose; and has its origins in freebooting, piracy, the slave trade and mercantilism as the main sources of engineered wealth and prosperity. We learned that you really cannot privatise/eliminate the national debt (a Tory idea that however dimwitted, never dies), following the South Sea Bubble fiasco. Adam Smith rewrote the economic text on the nature of wealth; one man’s prosperity is not necessarily at everyone’s expense (you should read him some time). We discovered that only through liberal use of the National Debt could we manage to develop an industrialising society; not least by using it liberally to end slavery (the Slavery Abolition Acts 188-1836; but not to recompense the slaves, but the slaveowners).
The problem is the Conservative Party has been trying to undo the wisest, hard, half-learned (and dangerous to lose) lessons from history, over the last forty years; and such painfully gained wisdom we now possess about the nature of money. As with the South Sea Bubble in 1720, Neoliberalism in the 21st century is again laying waste prosperity in the service of undiluted folly and rapacious greed. You are simply helping them as you toddle along, content in blind complacency.
@JSW
You patently have no idea how I see the world. You ascribe views to me which I have never expressed, not here nor anywhere else. I’ve no idea why. As it happens, I agree in large measure with your final paragraph and many of the less personal references in the preceding one. Perhaps we can leave it at that, hopefully before our host and his other contributors and guests lose all patience.
Mr Thomlinson,
You could try thinking through the implications of the statements you write. Once written, unless qualified they stand independent of what you may wish them to mean. Let us leave it at that.
Righteous outrage is not a good case for a bad argument, directed at the wrong target, for the wrong reasons; and that grossly misses the point.
You are merely serving the purpose of vested interests and trolls; who are keen to keep the public permanently angry, confused, and committed to undermining their own best interests.
Nobody “owns” the money Linda in the sense of blood, sweat and tears spent digging it up or growing it in their garden it simply passes through their hands as a contribution to the society they live in or someone who made that contribution gave it to them. As soon as they spend it or have to spend it (taxes to help keep its value stable) it passes out of their hands and ultimately disappears entirely because of these taxes and other government charges. Even if they hoard it ultimately on death it can start to disappear it depends on the inheritance tax rules in place. Yeah we all say “nice to have it” but ultimately it’s not an “it”!
Glad you ‘outlouded’ your anger Richard – cathartic for me… drives me (expletive deleted) utterly bonkers when I hear that phrase now. Great stuff. 🙂
I tried to argue with a local Labour councillor about this, part of the group who’ve controlled the region for 30 years. He tried to belittle me, as he often did when I raised points of order, and just like those days, he lost the argument. He finally conceded it was a political fiction, but everyone had to join in so that the Tories weren’t able to paint Labour as economically ignorant. Think about that piece of doublethink!
@ John Griffin I think about it and see yet another “ill-educated child politician” masquerading as some kind of expert yet refusing to investigate what underlies the use of the term “taxpayers’ money” which I think you’ll find revolves around the debatable “Quantity Theory” of money. It’s debatable because many factors drive the creation of money trade being a big one as Thatcher found out after adopting Milton Friedman’s Monetarism (a Quantity Theory of money).
Tax obligation = − £1,000
Tax payment = + £1,000
====================
Balance after tax = £0.00
As I see it, our tax bill generates £0.00 from taxes. Of course a government can always record how much tax was received, but has to offset this against tax obligations.
I am not sure waht that means, to be candid
Just say “public money” instead.
I was wondering when the concept of “taxpayers’ money” became popular currency, and it goes back further than I expected, into the early 1800s at least. Perhaps it has more relevance under the gold standard, as the government fetters its own power to issue currency.
The most interesting thing I’ve found is a letter and reply published in volume 45 of the “Truth” periodical from 19 January 1899. (I understand this magazine had a Tory bias, so that may explain its angle, and excuse the length of this quotation):
“In my youth I was taught, as one of the elementary truths of political economy, that the defence of wasteful expenditure as “good for trade” is a pure fallacy. Judging, however, from a discussion that has been going on about a certain American millionaire’s entertainment, as well as other talk of the same kind that is now frequent, this axiom, like not a few others, is no longer admitted. Further evidence in the same direction is furnished by the following letter, with which I was favoured a week or so ago:
—
SIR,-I am sorry to see in your publication such nonsense as this, “Over £300,000 of the taxpayers’ money will have been squandered on the new Royal yacht. … It is a most disgraceful waste of the public funds.”
….
As a taxpayer I approve of the expenditure. The money thus spent is put into active circulation, and promotes industry in the best form of skilled labour. Having served its purpose, the money reverts to the traders, and the taxpayer gets it back with a profit.
Money spent in the country where it is collected is a blessing. The mischief arises when the money is sent abroad to be spent in Egypt, or America, or in promoting rival industries on the Continent. NEWTON CROSLAND.
—
Observe this gentleman’s position. I say that to take £300,000 out of the pockets of the taxpayers and expend it upon producing a perfectly useless article is a “disgraceful waste.” Mr. Crosland considers this to be nonsense, and he justifies his opinion by the argument that as the money is expended for the benefit of a certain industry and thereby put into circulation, “the taxpayer gets it back with a profit.” If Mr. Crosland is satisfied with the profit which has come back to him on his contribution towards the £300,000, he is a lucky man. Personally, I have not noticed that any of the profit has come in my direction. But assuming that this gentleman is right, what follows ? The more money you levy in taxes and expend upon articles produced by some form of home industry, the wealthier the nation must become. On this principle it would seem that the sooner we tax Mr. Crosland’s income up to 20s. in the £, the better it will be for him. What we do with the money really does not matter. We can hand it over to a contractor and employ him to dig holes all over the country and fill them up again. The money will thus be “put into circulation,” and will come back again to Mr. Crosland-with a profit. This seems to me very like nonsense. But Mr. Crosland, a taxpayer,” will approve of the expenditure.” “
Sadly I don’t think the public debate on public expenditure and public investment has advanced much beyond this nonsense in the last 124 years.
Brilliant
How did you find that?
And the clearest evidence that the argument in absurdum has always been used by those opposing economic sense
I just did a Google Books search for “taxpayers money” before 1900. Very little before 1850.
Here is a link: https://books.google.co.uk/books?id=1EwxAQAAMAAJ&pg=PA138
Employing people to dig and fill in holes has a flavour of helicopter money. But if it is directed at something useful, spending becomes investment. Compare the “new deal” policies of Roosevelt: the roads, bridges, dams, and other infrastructure his government employed people to build are by and large still there. And of course due for replacement nearly 100 year later. Just as our even older Victorian railways and sewers are.
Thanks
I think “taxpayers money” as a concept follows from the changing source of tax revenues from land toward personal ‘income’ and industry. I think the watershed here is the period following the Napoleonic wars; accelerating from the 1830s. The 1832 Reform Act was a marker (a symptom and effect rather than cause) of the changing financial and economic culture. Interestingly the House of Lords managed to block an attempt by the Liberals in 1911 to reintroduce Land taxation.
This is the topic that gets me firing off letters. I believe politicians are a lost cause and stick to it because it suits their agenda (consider tax a burden, starve the public sector of funding, resent those who depend on benefit payments) but what really annoys me is the media keeping repeating the narrative without question or analysis. And what disappoints me further is when progressive organisations and publications parrot it. Using your opponents’ language gives the impression of there being no alternative.
Much to agree with
A very timely post Richard and a clear and concise article in The National.
I recently received a reply from Norwich City Council in response to a FOI request concerning council tax and its relationship to the council’s spending on public services.
The penultimate sentence explicitly states there is no direct correlation between collecting council tax and the delivery of council services.
It therefore confirms that the council does not collect council tax in order to spend money on delivering services.
The PDF of the full request and reply is in the references on my blog article:
https://moneyfaqs.substack.com/p/how-does-the-government-pay-for-public
I am not sure I agree with all of your linked post
It lacks clarity, I think, and so maybe consistency
Thanks Richard.
Please do let me know which specific parts you think lack clarity and consistency. I’m interested.
The main points my article makes, I feel clearly and consistently, are that the government’s finances don’t work like an individual’s (third paragraph), that it has multiple options open to it when it wants to pay for something (fourth paragraph) and that it doesn’t collect tax in order to fund public services at a central and local government level (from paragraph nine).
Those points are then summarised at the end in four bullet points followed by the references and link to the FOI which relates to this blog article.
If there is anything positive you’d like to share about the article, I’d like to hear that too. Then I can better compare each part of my article and contextualise your feedback.
Kind regards,
Lee
Lee
Apologies – but it’s Sunday and I do not have time
I posted the link with a warning that I felt what I saw as the lack of clarity in your post meant I felt that appropriate
That will have to do I am afraid
Richard
Hi Richard,
No worries. I appreciate you reading and considering it anyway. If I had more specific feedback I’d be able to consider revising it, but if that’s not possible to provide, for whatever reason, I respect that.
Kind regards,
Lee
I think I spotted the inconsistency which muddied the water.
After listing the different options the government has when it comes to paying for public services, I then went on to say that they pay for thing using existing money from their bank account, which contradicted, or negated, the preceding list of options.
Whereas using existing money from its bank account, or overdraft, are simply two more options to add to the list.
I’ve revised the list and some parts of the proceeding paragraphs accordingly. Now it should be clearer. Thanks again.
Kind regards,
Lee
Thanks
It was the idea of money being recycled – when it isn’t – that most got me
Richard