Britain's economic rules are not laws of nature. They are political choices. And if those choices prevent us from tackling inequality, failing public services, inflation and climate change, then we need new rules.

In this video, I explain why the economic rulebook that dominates government policy is failing us.

Fiscal rules turn arbitrary accounting targets into supposed economic necessities, even when people, skills and resources are available to meet public need.

Inflation policy assumes that higher interest rates can solve price rises even when inflation is caused by shortages of energy, food and other essential resources.

Independent central banks make profoundly political decisions while claiming technical neutrality.

And the pursuit of GDP growth treats producing more as an end in itself, regardless of inequality, wellbeing or planetary limits.

There is another way.

Fiscal policy can focus on managing real resources and meeting public need.

Inflation policy can address the actual causes of rising prices.

Central banks can be democratically accountable.

Finance can serve society instead of dictating its choices.

And economic success can be measured by whether people thrive within planetary limits.

Economic rules were made by people. They can be changed by people.

The question is whether we have politicians willing to do it.

This is the audio version:

There is no Debate Ammunition for this video. My apologies: I have just been too busy.

This is the transcript:

Here's a fact: we're going to have to break the economic rules of this world if we're going to change it.

The economic policies we have are constrained by rules imposed upon us. Those rules determine what governments believe they can and cannot do. They shape fiscal policy, approaches to inflation, central banking, growth and finance.

But, and I cannot stress this enough: they are just political choices. They are not laws of nature. And if these rules prevent change, when that is what we need, then it's the rules themselves that have to go, and we must get the change that we need.

So why must we change the rules? That's because the rules that we have were created to protect the existing economic order. And if we're going to challenge that order, we have to break the rules. And the problem with these rules is that governments create them and then they behave as though they're both real and permanent, when that's not true.

When they're created, they're meant to help economic management, often in the short term, because let's be honest, most politicians don't stay in office for very long. But when these rules become embedded and a fixture that constrains the action of future politicians, they become a problem.

And right now, that problem is very big because those rules are determining in whose interests the economy is run. And at this moment, the economy is being run for the benefit of finance and for the benefit of the wealthy.

That means that financial targets can take precedence over public need in the world in which we live. And that means that markets can gain power that properly belongs to democratic government. The result is an economy constrained by its own conventions in order to prejudice most people.

Fiscal rules are good examples of this. Fiscal rules did not exist in the 1980s. In the UK, they basically came into existence with the arrival of Gordon Brown as Chancellor of the Exchequer in 1997. They were a publicity stunt. That was all they were. They were meant to reassure the country that Labour, which had been out of office at that point of time for nearly 18 years, would not be financially profligate. And so they turned arbitrary financial targets into supposed economic necessities.

Government spending was judged against accounting limits rather than social need. And let's be clear: that was a major constraint upon the action of the first Tony Blair government, which meant it basically failed to deliver anything of great use. And investment was often rejected, and still is, even when people and resources are available to fulfil the activity that is needed on behalf of society.

As a consequence, public services suffer because satisfying the rule becomes the priority, and the fiscal rule then replaces political judgement about what society needs. The fiscal rule becomes more important than us, and that is a failure of politics and an impediment to progress.

And let's be clear: the real constraints are not money. They are the availability of resources. Financial ratios are much less important than whether we have people, natural resources and planetary constraints that let us actually deliver what people need. That's because governments do not face the same financial constraints as households do. Governments can create money; households can't. Money can't constrain governments, then. It can constrain businesses and households.

What matters then is the availability of people, skills, and technology. Natural resources and environmental capacity also impose real limits. And spending only becomes inflationary when the resources required to fulfil a task that the government has set out to achieve are unavailable, and it should have known that in advance and not tried to do it in that case. Good planning should always prevent inflation is my point. Fiscal policy should therefore manage resources rather than accounting targets, and if it does, we'll get better outcomes, but that is not what happens now.

And in the same way that fiscal rules create problems, so do those that govern the way in which we manage inflation. Almost every aspect of the rules with regard to inflation assumes that there is just one single cause of inflation within the UK economy and within every economy across the Western world. But inflation does not always arise from excess demand, which is what the assumption underpinning that policy is. It can arise for other reasons as well.

We have seen inflation over the last few years, and all of it has been caused by shortages of energy, food, and other resources created by things like the pandemic and reopening from it too quickly, the war in Ukraine, and now war in Iran, and we will see more to come as a consequence of recent drought. Those are the things that have pushed up prices; excess demand has not. In fact, demand has been suppressed for other goods within our economies as a consequence of these shortages. And that is not at all the situation that the inflation rules that we have are designed to manage.

They're designed to take demand out of the economy, but demand in our economy is already muted. But higher interest rates, which are the policy tool that existing rules on inflation suggest, should be used on every occasion, cannot manage any of the consequences of these shortages, which have actually created the inflation that we have suffered.

Those rules are intended to reduce investment and increase financial pressure on households. And that's the last thing that we have needed because these inflationary pressures arise precisely because pressures on households are already too great, and they are having to shift their spending into essential supplies. And that is the distortion that is creating the inflationary pressure, which interest rates cannot solve.

In other words, we have another rule that does not work. It's trying to create a solution, but it's trying to solve the wrong problem. And if we keep using this rule, we will keep suffering. We will have a recession, and we will not see the growth that every politician says that they want, whether they should or not.

And the point is, that's the consequence of also creating independent central banks because we have given them the job since the late 1990s of managing inflation policy. We've put democratic accountability aside by creating these so-called independent central banks, and the claim has been made that these banks are then technically neutral. But every interest rate decision that they have always made redistributes income and wealth, and monetary policy can deliberately suppress demand and employment, and in fact, that's the way in which it works.

The deliberate creation of unemployment is what central banks do, and these are political choices with profound social consequences. So we have another rule that is not working in the interest of the country or the economy, or the politicians who claim they're trying to solve the problem of unemployment, but at the same time let our central banks create it because they too believe they are bound by rules that say that central banks must be independent. They need this rule to be set aside. We all do as well.

And then there is the growth rule: the rule, which is now the obsession of every politician, asks the wrong question. Increasing GDP is treated as an objective in itself, but GDP does not tell us anything about whether people are thriving. Growth can accompany inequality, insecurity and environmental destruction. The planet places limits on what we can do, but GDP ignores it. And so we get a false measure of outcomes, and of income and prosperity. And economic success cannot mean producing more forever on a planet that cannot sustain that possibility. So this rule, too is failing us.

At the same time, the City of London and other financial markets have created rules which are also impediments to progress. Financial markets are treated as though governments must satisfy them. Bond markets are treated as judges of whether policies are acceptable. Politicians say they must appease the market, and private financial interests then gain power over democratic choices. The interests of the wealthy become confused with the interests of the economy, and that's totally unacceptable. Finance should serve society rather than dictate its choices.

So we need a different economic rulebook. None of these rules works now. If ever they did, they do not now. And let's not worry about the history of them. Let's just agree that we need to move on.

Fiscal policy should focus on resource management and public purpose.

Inflation policy should tackle the actual causes of price increases, and not make everything worse by the policies that are put in place.

Central banks should be directly accountable to the government and work within democratic economic policies.

And economic success should mean people thriving within planetary limits.

Finance should meanwhile support productive, sustainable, and socially useful activity. And speculation should be put aside because it produces no value of any benefit to anyone in the long term, because all it does is extract value from working people and transfer it to the unearned profits of banks. And that means we should change our rules.

If we're to change the world, that is what we have to do. We can't achieve that objective any other way. Economic rules are only useful when they serve worthwhile objectives. Those we have don't work.

Democracy must then retain the power to rewrite these rules. The idea that they are now fixed and will forever constrain what we can do is absurd. They were chosen and chosen well within my lifetime. We cannot say they are the rules which will bind us forever. We cannot create a different future while obeying these rules, which were, in any case, designed for the past and a world that no longer exists. The understanding on which they're based has gone. We now know we have climate change. We now know we have crises with wealth and income inequality.

So what we have to say is: where are the new rules? But most particularly: where are the politicians who will change the rules? Or are we destined to remain stuck in the past because none of them exists? We need to move on.

That's what I think. What do you think? There's a poll down below. There always is at the end of these videos. Please let us have your comments as well. Please do like and share this video; that really helps us with YouTube. Please also subscribe to the channel and hit that bell button because that means you're notified when we make another video. And if you'd like to buy us a coffee, that would be just great.

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