Guardian journalist Helen Pidd, asked, after attending the far-right rally in London at the weekend, a simple but wholly appropriate question:
When the far right becomes the mainstream right, what language do we have to describe what is happening?
She then asked:
How have conditions led to so many feeling unheard, frustrated and angry? Until the foundations of Britain are fixed – the NHS, schools, potholes, fuel prices – I can't see this movement doing anything other than growing.
That observation appears to be appropriate.
We know that the far-right thrives in conditions of economic and social neglect.
It recruits amongst those who are angry and fearful.
It feeds on the sense of abandonment that ordinary people feel when public services fail, wages stagnate, communities decay, and the political establishment appears deaf to their concerns.
If, as Helen Pidd also noted, potholes cannot be filled, NHS waiting lists spiral, and schools struggle to function, then voters conclude that “the system” does not work. In that vacuum, extremism finds it easy to win support.
The obvious conclusion to draw is clear: if we want to protect democracy, we must invest in its foundations. That means schools that work, hospitals that treat people on time, local services that do not collapse under the weight of austerity, and new affordable housing. It means rebuilding trust by showing that the government can deliver.
And this is where Labour's self-imposed fiscal rules are a complete disaster. By clinging to the household analogy - the idea that the government must “live within its means” - Labour has committed itself to underfunding the very things on which the future of democracy depends.
The reality is that Reeves' rules ensure that when crises hit, investment cannot be made.
They guarantee that potholes will go unfilled, the NHS will remain underfunded, and teachers will struggle.
They promise more disillusionment, not less.
They are, then, the far-right's very best recruiting sergeant.
This is all despite the fact that the UK government, with its own currency and central bank, is never constrained in the same way that a household is. It can always create the money to fund what is essential. The constraint is never financial, but rather a lack of resources, whether they be staff, equipment, energy, or raw materials. If those exist, then the government can and must act.
Fiscal rules pretend otherwise. They artificially bind our hands. They make inaction the default, even when action is desperately required. In doing so, they open the door for anger and for extremism to step in.
The question to ask is a simple one: do we want to spend now to secure democracy, or do we want to pay later in the form of realised political extremism, social division and the erosion of the best of the only system of government we have ever had that at least tries to represent people?
Labour must choose. It can cling to rules that serve City orthodoxy and neoliberal dogma. Or it can recognise that investing in Britain's future is not optional: it is the price of keeping our democracy alive.
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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Fiscal Rules Feed Fascism!
They do…
The moronic rich who want fiscal “black holes” fail to recognise that the UK began legislating (starting at least in 1866) to allow state spending from nothing in response to feedback from the economy that real resource usage wasn’t being optimised. In other words the old adage can be used that the rich “cut off their nose to spite their face”!
It’s evident from the UK’s economic decline this stupidity has to be stopped. The necessity for state spending flexibility is a central message that needs to be pushed, likewise that the state must withdraw from subsidising businesses that can’t pay an adequate Living Wage (the Henry Ford nostrum if you like).
Spot on.
Take the NHS, Streeting and Milburn are introducing change that was previously done by Milburn when he was last in charge of Health.
Last time “change” did not work. This time around with Rachel’s austerity it’s highly likely that the “recycled changes” will be a disaster.
This will just add to the sentiment that the UK is failing.
No steer obviously has no idea what is happening in the NHS.
Who needs the BBC and the main stream media to boost the far right when LINO are doing the job so well.
Much to agree with
“No Steer Starmer” sounds about right!
Yes. Absolutely. 100%
To me this is THE key issue, all the other economic problems are consequences of treating the economy as a household. Yes, there are other issues, such as the under taxation of wealth and unearned income, but these are secondary to the problems cause by false, arbitrary fiscal rules.
We hope the economy will grow by 2% per annum and we might like inflation to be 2%. This requires that there be 4% more money per year. At the moment inflation is nearly 4% and growth and anaemic 1%, so a tad more than 4%. This means that the government must run a budget deficit of at least 4% on average, in perpetuity. With UK GDP about £2.5 trillion, this means we require a budget deficit of at least £100 billion!
Without an adequate budget deficit, trying to comply with nonsensical fiscal rules, the economy is forced into perma austerity. That’s what we have.
Most people know the economy is broken, but they don’t know why (hardly surprising when the media and authority figures all tell them, essentially, that we need more austerity). We get the insanity of a government trying to save £5 billion by further impoverishing our most disadvantaged, the disabled, children, poor elderly people. They tell us this is essential to comply with arbitrary fiscal rules. And most people know this wrong.
Knowing the economy is broken people look around for the cause. Understandably they latch on to all sorts of incorrect reasons, like immigration, welfare “scroungers” and so on. Helen Pidd in the Guardian is absolutely correct; this can only get worse until the fundamental problem, trying to stick to nonsensical fiscal rules, treating the economy like a household, is addressed.
So thanks so much Richard for highlighting this crucial issue again.
Thanks
Perma austerity – a good term. We must melt this, and try to preserve permafrost.
I Googled…
Does Modern Monetary Theory justify budget deficits at the current rate of inflation?
Goggle’s answer…
“No, Modern Monetary Theory (MMT) does not justify budget deficits at any rate of inflation; rather, it posits that deficits can lead to inflation when the economy is at or near full capacity and lacks the real resources to meet the increased demand from government spending. MMT claims the real limit to government spending is not financial but rather the economy’s productive capacity, and that if spending exceeds this capacity, it will result in inflation. If inflation becomes a problem, MMT suggests raising taxes to curb demand, not abandoning spending.”
Tim Kent’s policy would be for the government to underwrite whatever the current rate of inflation happened to be, a purely reactive approach.
MMT does justify judicious budget deficits most of the time, which do not need to be covered by bond sales, but they should approximate to the target rate of inflation – currently 2 percent a year – plus a realistic rate of growth of the real economy and making allowance for the money that may be created by commercial bank lending.
Government deficits are necessarily counterparted by private sector surpluses, which inter alia can allow private sector debt to be paid off, making the economy less volatile. But if there is excessive inflation, such as would be produced by a subsistence Universal Basic Income, then the private sector surplus will be severely reduced by a worsening trade deficit.
I am inclined to your view
To which must be added there is cheating in global trade whereby some countries suppress public spending on goods and services requiring citizens to reduce consumer spending in order to save for any change in their situation such as illness, job loss and old age. The reduction in consumer spending and public spending obviously reduces demand which helps suppress the value of the country’s currency relative to that of others. This keeps their exports more competitive on global markets. (See Klein and Pettis’s book “Trade Wars are Class Wars”)
No, the numbers don’t work.
The numbers would work if
i) the stock of money equalled the annual flow of GDP; and
ii) the government budget deficit was the only source of new money.
(i) is not too far wrong. But (ii) is off the mark: as Richard has explained, commercial bank lending is the main source of new money.
Suppose that commercial banks need or decide to hold 10% of their assets in government-created assets for safety, and the other 90% in more profitable loans. The money supply grows by 4% (equal to 4% of GDP) each year, but the budget deficit ‘required’ to fuel that growth is only one tenth of that = 0.4% of GDP.
You are assuming fractional reserve banking
Yes, as a convenient illustration.
But the key point is that 4% growth in the money supply would ‘require’ a budget deficit of 4% of GDP only if there was no other source of new money. And we know that isn’t true.
“Theory induced blindness: once you have accepted a theory and used it as a tool in your attitudes and thinking, it is extraordinarily difficult to notice its flaws. We can be blind to reality because we are blind to our blindness.” (From Daniel Kahneman))
P. S. Might theory choice be affected by the seductive delusion of certainty and/or career direction?
Agreed, and yes.
P.S. Zack Polanski, of the Greens, is currently the only party leader that seems to get this.
Agreed
It’s crazy that there are effectively recruitment freezes across the NHS and education because they are being underfunded and told to make efficiency savings. After 15 years of austerity there are no efficiency savings left that don’t involve less staff!
So a party claiming to be cutting NHS waiting lists is overseeing thousands of newly qualified nurses and teachers being unable to get jobs.
Sadly I feel as someone working in the public sector this government is even worse than the previous one, and there is no longer the hope a new government will continue r in a d improve things.
I’m glad I voted Green at the last election. I did not believe it was a wasted vote. I voted for Zack Polanski, who is finally speaking out in a way that people can understand. And in Devon our new LD administration is dealing with the potholes that had been allowed to develop in the name of fiscal prudence.
What is being spouted is utter madness. We already have a mental health crisis amongst our school age and young adult population. Demonising them will not make it go away. Like ignoring potholes the problems just get worse and cost more to fix. Why out of all the cabinet Rachel Reeves is still in her job I do not know. She and her fiscal rules need to go.
Agreed
Indeed, the only number that matters is the amount of extra govt investment that will be pledged.
It needs to be tens and tens of billions more than weakly and tentatively announced so far.
This number should be the only one announced and then the chancellor should simply sit down.
Even the nodding donkey Labour MP’s are saying Starmer and co just don’t discuss – there is no engagement. They ‘cant/daren’t answer ‘but do we really have no money’?
” Or it can recognise that investing in Britain’s future is not optional: it is the price of keeping our democracy alive. ”
But they are not going to do it – they are corrupt to the core – see Patrick Holden’s forthcoming book
HI Richard,
I really admire the work you do. So, when I am playing the devil-s advocate, please don’t look at it as criticism, but as joint thinking to make your ideas work better.
In relation to austerity, I agree that the government cannot be compared to a household… at the same time, MMT also has its limits, although these are rather soft limits. There are no free lunches on the long run. If governments don’t have to “live within certain means”, that I interpret as considering certain limitations, then you practically invented a perpetuum mobile, the economy of eternal youth…
You mention the lack of resources as the only constraint. Don’t you think that we have reached the capacity limit in taxation? Unless we substantially extend this to the super-rich that I believe no government would do unless we change the rules of election and representation.
I’m afraid that democracy in its current form is part of the problem. I even allow that it generates the problem. Aristotle describes it fairly well how democracy becomes its own parody, a corrupted version of the original idea over time. This is where we are now. Extremism is just the by-product of a malfunctioning democracy, the way how democracies typically die. It is when people realise that the current system is beyond repair and it must go to give place to a new system.
You might argue that our democracy can be reformed, and the issues fixed, but this is exactly what people no longer believe. What kind of choice is it when you only have the bad and the ugly on the menu? I mean, not just now but for decades!
How can you forge a consensus, the key building stone of democracy, when people can no longer agree what the truth is. Oh, the evidence is there… but it only matters as long as they support the person’s perception of reality. If there is a conflict, it becomes fake news instantly. Just mind the 2020 US election and what half of America still believes in this regard.
I admit I am not sure what question you are asking me.
First, your idea of a capacity to tax makes little sense. You mention taxing the rich more, contradicting yourself. But if you understand MMT you realise the capcity to tax is directly related to the rate of government spending, which is limited by the level of resources it can command within its economy. You have the cart and horse very much the wrong way round.
As for the collpase of democracy – this is clear.
Richard. You say:
“This is all despite the fact that the UK government, with its own currency and central bank, is never constrained in the same way that a household is. It can always create the money to fund what is essential.”
Now, I was rather startled when watching recent Steve Keen video when he said that government is obliged by law to sell bonds in order to make up the deficit between spending and revenue by selling bonds.
I consulted Chatgpt which said that this was indeed true. That although there was no actual prohibition of direct financing in the 1998 Bank of England Act the government was constrained as follows:
“No single clause in the 1998 Act uses the words “monetary financing is forbidden.” But legal commentators, the Bank-Treasury MOU, the DMO’s operational framework, and public statements by the Bank/Treasury combine to create a clear legal and practical boundary: permanent direct central-bank financing of government expenditure is treated as impermissible and the institutional arrangements (Ways & Means = temporary; DMO = market borrowing; BoE secondary purchases = QE) are the mechanisms that prevent it.”
I am not saying that AI is correct, but this seems to contradict the apparent MMT position that seems to say that the government can create money for direct financing.
Am I misunderstanding or are there ways round it?
And who would mount a legal challenge if government did initiate direct funding?
Though it also said “There is debate (some legal uncertainty) around how to interpret some facilities (like W&M) or operations (e.g. QE, which involves secondary market bond purchases)”
Apologies if this seems confused.
ChatGPT cnfirms there is no such law.
There is human interpretation driven by dogma.
And given that law is very often an expression of dogma which those in power wish to impose two things follow. One is that if they have not made this actual stated law it is rather suprising. Second, any government could change it at the stroke of a pen, as they creeated QE in the same way.
I do not agree with Steve then.