Martin Wolf used his FT column this morning to demand that Labour increase taxes in this country.
He did not do so to address the crisis of inequality that we face.
He did not suggest this need arises because of the urgent necessity of redistributing to those in need.
He said that raising taxes was essential because spending cannot be cut and “the [Chancellor] needs to create a fiscal path that credibly reduces the ratio of net public debt to GDP, so re-creating some of the room the country lost over two decades of crisis. This will mean a substantial fiscal tightening. The current fiscal rules are not enough.”
As if to emphasise the point, Wolf concluded his article by saying, “Fiscal credibility is not a luxury. A government that does not deliver it is walking naked.”
In presenting his case, Wolf also argues for increases in income taxes, by implication generally, and VAT, which is, of course, just about the most regressive tax of all.
The message is, then, quite clear and comes in three parts.
The first is that people must brace themselves to pay more tax.
The second is that they must, despite this, expect nothing more from the government, even though they are already disenchanted with its failure to meet their obvious needs.
Thirdly, all of this is supposed to be required so that the government can, to use a metaphor, put some money aside for a rainy day, whilst coincidentally keeping the City of London happy.
It takes little decoding to work out the real message. It is that Wolf thinks that the bond markets rule.
He thinks they must have their way.
He believes that the price of them doing so must be borne by ordinary people, and by those who will be made unemployed as a consequence of the actions that he proposes.
He thinks that the economy must be slowed, because that is the inevitable consequence of what he is recommending.
He believes that the sacrifices that will result, whether from the failure to manage climate change, or to deliver the homes that people need, or to provide the training, healthcare and support that people will require if they are to join the current toxic neoliberal world of work, let alone meet the needs of an ageing population, must be made to support defence spending and the need for the government to accumulate reserves so that it might have the funds required in the event of crisis.
The problem with Wolf's argument is that we are in crisis.
The world is already at war, led by the leading rogue states in the world, which are the USA and Israel. We are already paying the price of that.
Austerity is already denying people the services they need.
There is already rising political tension that threatens democracy, which is being exploited by the far right of politics, with which it increasingly seems that the City of London and the FT are aligned. If you wanted to promote fascism in the UK, Wolf's plan is a blueprint to follow.
And all of this rests on completely false economics. Wolf's foundational assumption is that the household analogy applies. The fact is that it does not. That analogy is. a myth, and a dangerous one. The government is not like a household. In fact, in almost every imaginable situation, it has to act in ways that are the opposite of any household.
Despite his supposed intelligence, and the fact that he has written for the FT longer than most of its readers have been alive, Wolf does not know that.
It is his belief that, like a household, the government must raise funds through taxation or borrowing before it can spend. That is not true. The government creates money when it spends. The capacity to pay tax and to save arises from the spending that the government creates, and the money that it puts into circulation.
What is more, what he calls borrowing is no such thing. It is saving, and nothing more or less than that. It is already the money the country has put aside to deposit in a safe place in case the proverbial rainy day arrives. It is deposited in a place which the government provides. But Wolf does not understand that. And so he gets quite literally everything that he says wrong.
In his world, the goal of government is to run a neat balance sheet.
And the purpose of politics is to balance the government's cash flow
Whilst the interest group that the government is meant to serve is the City of London.
None of those is true. Politics is about three things.
It is about meeting the needs of people.
It is about defending people from attack, including from those who would seek to threaten their well-being by forcing up petrol, diesel, gas, electricity and food prices.
And it is about protecting people from those who would abuse them, and most especially those with power and finance who would exploit those without either.
Wolf's ideology does not facilitate the meeting of needs.
It does not protect people from attack.
And it serves the interests of those who abuse, and not those who are abused.
In this life, we have to choose whose side we are on. Wolf has made his choice. He serves the forces of oppression. I am only interested in serving the forces of liberation for those who need to live with freedom from fear, which is the state to which far too many have been consigned by neoliberalism and its proponents.
That is a decision we all have to make. And the need to do so is growing by the day.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
These days I am not surprised by the fact that so many people, who are it is generally assumed intelligent and educated individuals, are totally clueless about the way in which governments are funded, resorting to the household analogy to assert what must be done. The question is why is this? Is it that they are totally inept, is it that they lack the ability to question accepted ‘wisdom’? Do they never say to themselves ‘lets have a look at this, perhaps I need to look at the evidence’. Perhaps they think that if they now admitted they were incorrect in their views in the past they would look rather stupid? I always recall some years ago that when I went to University (East Anglia), that one important element of university education was to seek answers to questions and assess evidence before reaching a conclusion. It seems that many of those who did receive such an education failed to take that advice on board.
Very well said – this may be the theme of a video this week.
Thank you, both.
Yes, please, Richard. Please, please, please.
I count my dad in that, a retired doctor and professor. He just cannot think that a government is not a household. I know he comes from a poor family where every day was a struggle, but that’s not a government.
When the Fed and ECB raised rates and Bank of England mused about an increase next, it took me a week to explain that interest rates can’t combat a supply shock. I was sorely tempted to ask how would an increase in interest rates scares shalwar kameez and flip flop clad farmers with AK47s?
Dad served God, Queen and Country from 1964 – 91, including in Aden, and the family business known as Saudi Arabia from 1992 – 15 and understands that a financial instrument is not an instrument to fight a war.
We just have to keep trying…
We not allowed to question anything anymore. We all have to shut up and do as we’re told. If we do question things we’re shown the door… People are scared and told be an individual and only rely on themselves. Therefore we are easily controlled and manipulated.
If you don’t fit this narrower and narrower model of what it is to be a good person, you’ve all but failed.
See tomorrow’s video, now recorded.
It is unlikely that Wolfie believes the “gov-as-household” nonsense. As is common with such people, they will say one thing in private and something else in public. John Deadwood, the tory, admitted a few years back that indeed, MMT provided the correct description of how govs are funded. However, the interests of Wolfie and Deadwood is the preservation of the City of London’s privileges i.e. kicking the gov of the day around and making sure that the City can make lots of money. Anything that threatens this needs to be squashed and, change is bad. Thus Wolfie is a mouth piece for the interests of the City and delivers useful propaganda on their behalf. If you are going to lie – you need to know the nature of the lie and how it fits with reality. Thus “J’accuse, Wolfie liar & hypocrite”.
Much to agree with
The posts here have identified both of the main types of people which say the household analogy is true: the first, those who believe the myth because they’ve never questioned it, and the second, those who don’t believe it but say they do for ulterior motives.
The issue is that the second lot, with the unwitting aid of many of the first type, have successfully captured two important groups: the media and the politicians (and, through them, democracy). The very groups which work tirelessly to keep the myth alive.
Given that it’s rammed down their throats daily by almost every outlet as the truth, it’s quite understandable that it would never occur to most people that an alternative interpretation might even exist. The constant drip-drip-drip of education is vital, and blogs like this are invaluable to those of us who have no background in the field.
Speaking of education, a very great man once said, ‘Education, education, education’.
Tony Blair said it as well.
🙂
“It is difficult to get a person to understand something, when their salary depends upon their not understanding it.” (From Upton Sinclair)
“It is easier to fool people than to convince them that they have been fooled.” Attributed to Mark Twain.
According to the Times currency traders are betting big (£6.5bn) that” the pound will fall because the BoE has not put up interest rates amid rising inflation whilst other central banks have increased interest rates”.
The reasoning? ” High interest rates tend to strengthen a currency becuase they increase the relative attractiveness of fixed income assets denoted in the said currency”.
I am not expecting Tinkerman Burnham to do anything but if the currency traders make big profits from this, their companies must be super taxed to show such speculation does not pay.
There are a remarkable number of people who when asked would rather that the poor were poorer so long a inequality of income reduced.
@jonatenpallasen has recently surveyed Danish Parliamentarians and they genuinely agree with tackling inequality over poverty even if the question is phrased that it means making the poor poorer.
I am sure you can see the sense in what you are saying. I can see you are working in what may be a second language, but I do not follow your logic.
Thank you for this. Meanwhile, energy prices continue to rise and there is a potential electricity grid shortfall from 16:00 this afternoon (no wind, apparently).
Whilst it is true that a lot of the cost of petrol and diesel is tax, cutting the duty to reduce “pump prices” will surely bring about a burst of “Jevons Paradox” as highlighted by Tim Watkins last article. The reasons for ever-increasing fuel prices is a shortage – particularly of refined products – and reducing the price will surely exacerbate the problem!
Rationing ahoy.
Indeed. As I have said before this year…..
I can understand there is some concern over inflation given the rising costs of energy and food due to the war related shortages following the closure of the Strait of Hormuz. I can even sort of understand that some may see raising interest rates as a way of trying to control potential inflation risk elsewhere in the economy. I completely disagree with the argument, but if I squint, I can at least see an argument.
Where I constantly struggle is with this idea that national debt is “too high”. What is the argument? Is it that the government will default? Are bond buyers pushing rates higher because they fear the risk of default? Even neoliberals must see these are not valid arguments when governments “borrow” in a national currency. How does total debt impact inflation? What is the transmission mechanism? Why does 125% debt to GDP materially impact inflation more than 75%? Why is Australia facing the same inflation and bond issues as the UK and Japan? Inflation is about the flows of currencies and goods, not absolute debt. I just don’t see how the internal neoliberal logic of the argument would even work.
I would also note that BoE data shows that the uk had debt to gdp of over 250% in the 1830s. It would seem that such high debt did not cripple the country for the subsequent 100 years… and inflation in the uk has only ever reached 25% twice in history, during the Second World War and the 1979 oil shock. It really isn’t a big concern…
Its because teh UK abandoned the fuel duty escalator that there are so many heavy cars with large engines using up more fuel than is necessary on the roads.
Oh and often driven very fast and very badly further exacerbating the problem
Indeed. We live in rural Somerset and are simply plagued by PCP-funded massive Land Rovers, etc. driven, in the main, by people in their 70s very badly. I’ll call these “Because I can Cars”, others call them far ruder things. It’s a social problem, in truth, from a generation with a massive sense of entitlement and overlarge “final salary” pensions. Mind you, they are gradually reducing in number for entirely natural reasons. I’ll stick to my Fiat Panda around the narrow lanes, ever on the alert for massive cars!
We have a two-word rhyming phrase. The second is tank. I sometimes think that credits the owners with too much ability to coordinate thought.
John,
I don’t disagree with a word you’ve written, but couldn’t help smiling at your ‘large engine’ comment, having moved to Australia over 20 years ago. Back in 90’s Worcestershire I bought a Mazda 6 from a work colleague, which was only available because the under 25 year old who was going to buy it couldn’t afford the massive insurance premium for a car with such a ‘ big’ 2L engine. Things may have changed since then.
My wife’s current car has a 3.3L V6 engine, but that’s only because it was the only car we could find big enough to fit an electric wheelchair hoist. My Honda is a mere 2.2L but has to tow a heavy trailer at times and averages 7L/100Km unladen (I think that’s about 40MPG which is double what my 1973, 1300 Cortina managed).
In Australia the road tax for a car includes 3rd party insurance so the restriction on young drivers in big cars isn’t so effective. The link below is to an advert for the favourite wheels among petrol-heads. Still common enough here, I was amazed to find this advert for one imported into the UK. I doubt anyone would have insured it in my day.
Sadly the fact that young, inexperienced drivers can have access to these vehicles has an inevitable effect on the death toll among newly qualified drivers in Australia but things are beginning to change as real fuel prices have risen significantly in the years we have been here and Holden is but a memory.
https://www.burevalleyclassics.co.uk/listings/holden-commodore-ss-v8-ute/
Hello Richard.
As readers of your blog, and yourself, may have noticed, the phrase ’fiscal headroom’ seems to be getting used a lot at this moment in comment pieces and news items.
Do you think it’s worth doing a video on this subject directly?
Regards.
Let me play with that idea.
Mr Wolf wants to huff and puff and blow your house down.
Recently published research by a team at University College London led by Mariana Mazzucato shows that since the turn of the century actual investment in producing goods and services by major corporations has stalled and even declined slightly in the UK and other European countries, while overall corporate balance sheets including profits and dividends paid have continued to grow. Loans and assets purchases have made up the gap.
Labour International believe this is is a serious problem which partially explains why tangible growth in available goods and services lags behind reported GDP growth figures, with deleterious effects on employment, wages and living standards.
Tax structures have not focused sufficiently on tangible investment and instead fed concentration of wealth. And if major corporations are not mobilising resources to increase productive capacity, public programmes and institutions must ensure this is done.
Therefore, Labour International calls on Government establish investment trusts throughout the country and facilitate their financing by savings and bond sales dedicated to tangible UK investment. Such bonds should be redeemable before maturity but not made available for sale to third parties. Although conventional Treasury bonds will continue to be issued, only tangible UK investment instruments should enjoy the tax breaks previously accorded savings and bonds more generally. Allowances against corporation tax for investment must be accordingly restricted to UK productive capacity.
Government thus able to mobilise and stably fund additional investment projects throughout the country will be able to deliver important commitments addressing acknowledged needs in a sustained way. Corporations and other businesses will take this seriously and increase their tangible investment accordingly.