Every action has a reaction. That's true in life – and in economics. Every pound the government spends becomes someone's income, which creates tax, confidence and prosperity. Yet politicians and journalists still talk about spending as if it's waste. In this video, I explain why that's wrong – and why we need to ask the right question: what possibilities does government spending create?
This is the audio version:
This is the transcript:
Every action has a reaction.
It's something that I know as an accountant. If you're an accountant, you know that every single entry in a ledger requires two entries, not one, because there is nothing that happens in life that doesn't have two consequences.
But I said this to someone recently. He was a philosopher, and he looked at me, and it was as if a light bulb had gone on in his brain. He said, "That's true, isn't it? Every action does have a reaction."
And he thought about it, and he said, "But what that means is that every time the government spends, somebody gets it, don't they?"
I said, "Yes. That's obvious. That's true." But it hadn't occurred to him.
And I then pointed out that every time the government spends, it is, in fact, someone's income.
And politicians don't get this either. He didn't. They don't.
The world's media never challenge a politician who implies that government spending is a waste. The right question for them to ask is not, "Well, why did you do it then?" but "So what was the reaction to that spend?"
The fact is that the myth that public spending is a waste of money has to be challenged. Politicians talk about it as if this is the way in which government spending goes into the economy, as if there's a black hole into which they pour money somehow or other, although why they would want to do that, I never understand.
But the truth is, and I think deep down they know this, in economics, nothing vanishes without consequence.
Every debit in an accounting system has a credit.
One person's spending is always another person's income.
That income always leads to tax.
That tax shapes future possibilities, policy and stability.
And the reality is that spending generates income, generates tax, generates confidence. Confidence results in more willingness to spend. Spending can fuel investment, because people feel like it's worthwhile putting money into projects that might give them future income as a consequence, and therefore investment creates future prosperity
And all of those things follow because an action creates a reaction, and a reaction creates a whole chain of events, which can be to our good.
The consequence is also clear in other areas.
Prosperity is not just about GDP. Yes, we can measure GDP, a bit inadequately. But there are many things that we know aren't reflected in GDP, but are the reactions to what government spending and other spending creates.
There's equality. There's dignity. There's care. There's security.
All of these create potential.
And the reason why they create potential is because if people feel equal, respected, cared for and safe, then they will take the risk to enrich society.
Every pound they then spend recirculates into the economy. And once that money starts to circulate, we create new after-tax income for somebody else who spends it and who creates new after-tax income for somebody else, and on, and on.
So confidence, plus spending, creates this flow of resilience through the economy, and this is the exact opposite of waste.
Calling spending wasteful therefore undermines society. It creates a two-tiered economy. It implies that carers and pensioners are drains on society. That the armed forces don't add any value, although a lot of people would argue that they do. And builders working for the public sector are drains on our well-being.
And yet, all of those things create value every day, not least by the spending that they're able to undertake as a consequence of government spending in the first place, but also because of the well-being that they enjoy as a consequence.
So there's never a question to ask about "Is this spending wasteful?". The question to ask is "What possibilities did that spending create?" That's the real question we need to ask about the government and its spending, because otherwise, we've got every framing of what the government does wrong.
The government isn't a negative force within society. It's a positive force within society. And it could, if it understands its role properly, always consider how it can release human potential for the good. What confidence and stability can it deliver?
So in that case, reactions are not just financial. The psychological impacts of government spending matter just as much. And those reactions are political because they shape democracy.
Government spending always creates a reaction - economic, social, and emotional. We could add environmental, but that's probably not in the course of this video. To ignore all those things is bad economics, and it's worse politics.
We need leaders who understand this.
We need journalists who understand this.
We need you to understand this, and you to ask the question "Well, what was the consequence of that spending?" and what did they do with it? And it's that action by the recipient which determines whether the government spent wisely or not.
So, understand every action has a reaction. Government spending creates possibility.
Let's stop treating it as waste, and let's start asking, what do we want our reactions to be?
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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Excellent. Love to see the House of Commons begin and end every session by the Speaker (or his Chaplain) reading this out loud in the chamber!
As Neoliberalism/Austerity is evidenly harmful to the functioning, positive stability and sustainability of our society, how can it tolerate being questioed and better alternative being put forward?
If so, might one of the many negative consequences of Neoliberalism/Austerity be the unstated but effective suppression of grounded discussion and dissenting views in political parties, notably the Conservative and Labour parties, and in the main stream media, notably the B. B. C.?
P. S. Might the 14 year gaol threat to Palestein Action notice holders be indicative of increased protest repression needed to sustain Neoliberalism/Austerity?
So what stone do these economists hide under?
I am sure Richard that you must have seen the figures in your accounting days showing the ebb and flow of retail sales.
Why is or should I say was Late Night Shopping on a Thursday? It was when people were paid in the days when most were paid weekly.
Why are shops now busy at the end of the month – its when people are paid
Double entry book keeping in action!
What is it that they dont get?
They don’t ’walk about’.
“And the reason why they create potential is because if people feel equal, respected, cared for and safe, then they will take the risk to enrich society.”
Which countries take the most entrepreneurial risks and why:-
https://mathbabe.org/2011/11/22/who-takes-risks/
Spot on!! – but this sounds rather “Newtonian” after your series on “Quantum Economics”.
Time is not in quantum….
So we had to use Newtonian entropy, which defines time
Now you’re talking my language!!!! I have tried to tell people that austerity in public service depresses the economy rather than strengthens it because public servants at the lower end of the scale will spend extra money on ordinary things which have VAT, or excise duty on the price and that is money that goes straight back to the treasury, along with the tax and NIC on those extra wages. The rest of their expenditure supports everyday retail businesses and possibly, if they’re feeling a bit flush, artisan crafts and individual small enterprises. Their expenditure goes to businesses that pay tax on their profits and they don’t put money away offshore or in some tax avoidance scheme. It really is a very cheap method for the government to boost the economy. If you’re not used to thinking in this way and ‘following the money’ it can be a revelation.
Thanks
I was at an event recently where I was chatting to politicians across the political spectrum (excluding Reform who, to my knowledge, were not present). It was clear that all – despite being from opposite sides of the political fence – were personally very committed to improving society in general…keen to improve the NHS, Social Care, Education, etc., and to grow the economy, increase jobs, etc. If they are all committed and, in essence, in agreement with each other – and it was clear they genuinely believe this to be the case – why do we have the economic, environmental, health, social care, etc., problems that we have?
As some background to the following. I pointed out, factually, why some government policies, processes and fixation on private sector / PPI-type approaches (involving ‘investment’ by government) were failing to deliver progress and jobs in the country and indeed, because they were taking so long, they were, in effect, creating jobs and prosperity overseas. I should also mention that along the way during discussions I introduced MMT, etc., as an alternative way of looking at things and emphasised that they had the power to make choices. In summary, I was trying to make the point that they could invest / implement policies that were effective and delivered the right outcomes, or, we could continue to believe that despite all the accumulated evidence to date the next PPI-type investment would buck the trend and actually achieve what it was supposed to achieve.
My not very scientifically backed-up study concluded that none of them understand what you’ve described in your blog, Richard. None of them understand MMT and cannot see past neoliberal economics. Fundamentally, they don’t understand the potential to make the right choices and deliver value to the country.
A Labour politician’s responses summed it up best by stating and arguing forcefully that there is no austerity (based on their claim that they had increased spending). I disagreed saying that even if I were to accept his definition, people don’t feel that there is no austerity and, hence, the rise of Reform. Intriguingly, he then went on to speak about a priority being to address the small boats – even though he qualified it by saying that he and I recognised the need for inward migration.
Politics getting in the way of delivering prosperity and well-being for all.
Thanks
And regrettably, I think you are right.
I doubt that many politicians (and unfortunately a few others) understand these concepts – as long as their MPs wage is paid, their expenses paid, their subsidised bars and restaurants available, why should they consider the ‘other’ side of it? So – a light-hearted comment – maybe too many politicians and their advisors have read, learned and inwardly digested W C Sellar and R J Yeatman ‘1066 and All That’ – within this book it is stated “It was Williamanmary who first discovered the National Debt and had the memorable idea of building the Bank of England to put it in.” A bit later in this ‘history’ this is followed by a comment on The Southsea Bubble “About this time nearly everybody in London stupidly got involved in an enormous bubble that appeared at Southsea. Some were persuaded that it would be a Good Thing if all the money in the country, including the National Debt, were sunk in it; others got into it merely with the object of speculating how soon it would be before it burst.” As Richard states ‘in economics, nothing vanishes without consequence.’
🙂
You said you were chatting to politicians from across the political spectrum. Any Green Party politicians? I’d be really surprised if they didn’t know anything about MMT. Certainly the new leader does.
I will be meeting Zack very soon.
It’s very easy for any politician to fire off soundbites saying what they’d like to achieve. Especially around an election!
But when they realise that what they need to do in order put into effect what their soundbites demand sails pretty close to being called a commie…
Well no change for the good is a fait accompli.
I think the perception that Government spending is a waste is because of the prevailing myth that taxes and borrowing via gilts are what the Government spends, so the argument is that an individual is better at spending “their” money than some nameless civil servant.
I think the first step then is to keep explaining how Government creates the money it spends, so as to then raise the question of how best the Government can spend this newly created money to benefit the country.
“an individual is better at spending “their” money”
Except they forget most people don’t actually control how much money they have to spend this is largely determined by those who control capital, licenced banks, and politicians who control how much money government creates or not creates if they are monetarily illiterate. In consequence many people have inadequate incomes. At root most people fail to engage in joined up thinking.
Much to agree with
Anyone else watching the PJP annual conference?
There is a discussion at the moment on MMT.
A woman on the panel called Patricia Pino Argumedo was talking about how the left can free itself from Thatcher’s neoliberal constraints.
Patricia Pino is one of the two presenters of the excellent MMT podcast. 200 episodes now I think and very well worth exploring.
It’s good if you want the Bill Mitchell view of MMT.
Deviation is not permitted (as I know).
Steve Keen on now.
Off topic question.
were can we find a breakdown of the current government “debt”
– bonds purchased by treasury (one arm of government “owing money” to another)
– bonds held by uk private entities
– bonds held by foreign governments
– bonds held by foreign private entities
Was just looking at this incomplete explanation of QE and its consequences
https://www.youtube.com/watch?v=mVD8XaRfs4c
Here https://www.dmo.gov.uk/media/opunj3ps/apr-jun25.pdf
We need to keep pressing so-called experts and politicians(including our own MPs) on why they are in denial of facts concerning basic money creation and how that money circulates in our economy. This is not a revelation; it’s something I learned myself in 1982 and actually taught to students afterwards. I cannot,off the top of my head, think of anything similar in any other academic field, where those in power ignore or subvert a ‘known known’.
I don’t blame the public for being misled. Just the people misleading them.
Agreed
“There’s equality. There’s dignity. There’s care. There’s security.”
With respect, I fail to see all these things in my everyday reality. Despite all the austerity rhetoric, governments have spent enormously since 2008… still these spendings ultimately became the income of a few. Most ordinary people feel very little of the benefits but still must pay the higher tax bill. We are more inequal, there is less care for others, and we feel so unsecure that vision a forthcoming war. So, when you ask “what was the consequence of that spending”… just look around.
“It implies that carers and pensioners are drains on society.”
To the extent pension systems operate like a Ponzi scheme… yes, they are a drain on many societies. I mean, the system is wrong because it is unsustainable, not the pensioners who take the benefits.
“The government isn’t a negative force within society. It’s a positive force within society.”
Well, well… do you mean in general or in relation to the current Starmer government? Or a government that abandons austerity and keeps spending?
I think you need to consider that practice is quite often different to theory. As long a society is substantially equal, and ordinary people own the necessary assets to support everyday life, the theory seems to work. However, if the society and the economy is substantially inequal, and a few own most of the assets, then government spendings will end up with the few, who we may also call the “super-rich”. Taxation will not help as long the super-rich can avoid taxation of their real income. So, ordinary people are required to pay more tax (relative to their income and living costs) and cover the unpaid share of the super-rich. In such an environment, increased government spendings are not necessarily beneficial for the public.
Respectfully, I agree multiplier effects end when savings begin, but your claim makes no sense at all, and sounds like a massive neoliberal excuse. I will need a lot of persuasion it is not. The message is “don’t bother as it will end up with the rich” – which is all about utter indifference.
apologies for 2nd post – but for any politician that does not know – the debit side is nearest the window.
Even if have you to go around the desk to prove the point.
The standard notion comes straight out of the household analogy.
As an individual when you spend then the money disappears, and you get the goods or services you have bought in exchange, if the thing you buy turns out to be unsatisfactory in some way then one would likely describe it as a waste of money.
There can sometimes be more complex exchanges, but that is the general principle which is people’s personal everyday experience.
For a national economy, if one steps back and looks at the national economy as an entity, then it’s totally obvious that money spent does not disappear, it remains in that economy, as income for some other sub-entity within the economy.
Even if the exchange is with another national (or similarly external economy) then that can be categorised as the external sector of the economy, but the trade is an unnecessary complication to introduce at this very simple level.
Politicians, through experience, will generally appreciate that spending, especially in their constituency, does not disappear and has beneficial effects, but it’s easy for them to ignore that and switch back to the household analogy when it suits their purpose. The household analogy always fails, but it’s powerful a powerful tool for conservative politicians because it relates to people’s everyday experience and so easy to unthinkingly accept, even when the flaws should be obvious.
Relevant to this post, I’ve just published a new post on my little blog, on welfare spending (which quotes and cites a blog post of yours from July). https://thepoundinyourpocket.org/2025/09/19/19-cutting-welfare-spending-is-not-only-wrong-its-fucking-stupid/
And in reply to Alan Surtees above, Vincent Gomez and the 99% organisation https://99-percent.org/ are working hard on initiatives to educate MPs, to reduce their economic illiteracy.
I’ve always tried to explain the difference between a household’s £10 and the Government’s £10 as once you’ve spent your £10 that £10 has gone for you, but for the Government it’s still there circulating in the economy creating the “growth” that the Government is so keen to see. I’m one of the pensioners “costing” the country so many billions a year, yet those billions are spent in the economy….very few pensioners are now savers, or hoarders of money.
One of the things that disappoints me these days is that it was a point of pride that the old working class knew who it was and how it was that they were being shafted by capital.
These days there is no such awareness and no such pride it seems. Whoever is doing the ripping off is whoever the working class are told is the problem.
In fact it’s not much of a working class is it? With zero hours contracts, multiple jobs etc., its more like an underclass, the ‘precariat’ are not exactly getting any dignity out of work. Just day to day survival I suppose. And that is a really cruel way to run businesses and an economy and although I am not excusing anyone, it is still very disappointing but also helps us to understand the rise of Fascism and why it appeals to so many people.
That’s a really interesting insight…
I will be thinking about that whilst out this morning.