The most dangerous question in political debate in the UK is the one always rolled out by every journalist, on air or in other media, which is to ask a politician \u2018How are you going to pay for it?\u2019 where \u2018it\u2019 is whatever the politicians has just proposed to do.<\/p>\n
Why is the question dangerous? Three reasons.<\/p>\n
First it assumes that the government spends other people\u2019s money. It doesn\u2019t. It spends it\u2019s own. That\u2019s because it actually creates all money at the end of the day (even that put into circulation by private banks is done under government licence). And because it creates all money there is technically no limit on the amount it can produce if it so wants.<\/p>\n
Second, this means that the assumption that the government behaves like a household with regard to debt is just wrong. Households can\u2019t create their own money out of thin air to repay debt but governments with their own currency and central bank (as the UK has) can. \u00a3435 billion of quantitative easing since 2009 proves this and yet everyone pretends that this has not happened, which is ludicrous. The fact is that governments and households are not the same at all because households may be constrained by the need to repay debt but governments are not.<\/p>\n
Third, so long as the creation of government debt keeps pace with inflation and it does not overheat the economy by trying to create more than full employment then government debt is not a problem any more than having money in your pocket is a problem. And that\u2019s unsurprising because the money in your pocket is government debt. And all UK government debt is just a giant savings account for those who want an ultra-safe place to deposit their money, and what\u2019s wrong with that?<\/p>\n
So, what\u2019s the answer to that question in no more than 100 or so words? Try this:<\/p>\n
We\u2019re not going to pay for it. We\u2019re going to issue debt to pay for it. That\u2019s because people like pension funds, the banking system and prudent savers are exceptionally keen to buy that debt. But more than that, government debt is just money. Read what it says on any bank note and you\u2019ll realise that is true. And a growing economy needs more money and it\u2019s the government\u2019s job to create it. So we will. In that case who will pay? You could say it\u2019s the people who are queuing up to save with the government who will pay. And we\u2019re doing them a favour by letting them do just that.<\/p><\/blockquote>\n
And if the follow up question is \u2018But what about repaying the debt?\u2019 the answer is:<\/p>\n
I really think you should look at the history of government debt since 1694. It\u2019s grown, a lot, and almost continuously. And very rarely has any been repaid. And that\u2019s a good thing. Because government debt is what underpins the value of our money. So repaying it cancels money. If you don\u2019t want money I\u2019m happy to take whatever you wish to donate, but most people see value in cash. And so do I. That\u2019s precisely why I don\u2019t want to repay government debt. It would cancel the money we all depend on to make our economy work. You may think that\u2019s a good idea. I definitely do not.<\/p><\/blockquote>\n
And then to the bemused comment \u2018But who pays then?\u2019 which is bound to be the retort the answer is:<\/p>\n
As I have explained the government does. It uses its money to pay. That\u2019s the money it effectively puts into the economy by creating debt that people want to buy and it\u2019s the money that people owe in taxes - which is then the government\u2019s money. So the government pays. But if what you\u2019re really saying is does this mean more tax the answer is no, it doesn\u2019t. It means we will create more debt because the economy needs it. Just to keep pace with inflation we need to create about \u00a350 billion of new debt a year<\/a> to provide pensioners, banks and other savings institutions with the government debt that they need to keep the economy going. I\u2019m not going to risk a financial crisis by refusing them the debt they need when at the same time I\u2019d also be creating unemployment, harming those in need, be denying health care and would undermine education as well as the security and the safety of our country. Thanks very much, but I\u2019ll keep the bankers and financiers of this country happy by creating the debt they need and by providing public services all at the same time.<\/p><\/blockquote>\n
And it you want a slogan then it\u2019s \u2018Government debt meets everyone\u2019s needs\u2019.<\/p>\n
I can\u2019t see it getting much of an airing in this election, but I can hope.<\/p>\n","protected":false},"excerpt":{"rendered":"