Low turnout gives Labour trouble but they hold Lewisham East

Labour’s Janet Daby has won the Lewisham East By-election. Labour’s Janet Daby received 11,033 votes,(50.2%) the Lib Dem candidate Lucy Salek 5,404 (24.6%), and the Conservative candidate Ross Archer 3,161 (14.4%).

Daby pledged to oppose a Hard Brexit in a heavily remain constituency but Labour still saw their majority reduced from 21,123 to 5629 with the Liberal Dem vote rising by 20 points.  In her acceptance speech Daby said her victory meant “we will not tolerate an extreme Brexit in Lewisham East”.

However, the turnout was 33% less than half what it was in the General Election which will have hurt Labour’s vote and in an extremely safe Labour seat with very little at stake, the 17 point swing cannot be seen as anything but constituents voicing their dissent at Brexit.

The Liberal Democrats were keen to claim a moral victory with Vince Cable stating “the largest swing from Labour to the Liberal Democrats in over a decade” something he attributed to “the failure of Labour’s leadership to oppose the Conservatives’ hard Brexit”

The by election was triggered by resignation of former frontbencher Heidi Alexander, who was often a vocal Corbyn critic. However the new MP seems to be a Corbynista saying “I voted for Jeremy Corbyn twice in the leadership election and obviously within politics not everybody will agree on everything … but we need to find a way around it that holds the Tories to account.”

Johnson calls May’s Brexit customs union plan crazy

Theresa May’s plan to pursue a customs union deal with the EU post-Brexit has provoked a revolt from high-level members of her cabinet. Boris Johnson has labelled the plans ‘crazy’ and stated it would create “a whole new web of bureaucracy”.

The plan, which is similar to the one outlined by Keir Starmer in Labour’s Brexit plan, has been opposed by other cabinet Brexiteers.

Despite the EU apparently being open to the arrangement and it being a solution to the Irish Border problem, the hard Brexiteers within the cabinet are not pleased with the plan. They see the attempt to make the transition out of the EU and trade with the EU easier as a bad move as it will mean the UK will not be completely separate from the EU. Despite Johnson’s criticisms the Brexiteers both in and outside the cabinet have yet to suggest a realistic solution of their own to the Irish Border problem.

Nonetheless, with the feud within the cabinet becoming public, Theresa May might see her position as PM threatened. The powerful Brexiteers may use the threat of a vote of no confidence to ensure May shelves the customs union idea.

Business secretary Greg Clark has stated anything other than a close customs arrangement would risk thousands of jobs. Chancellor Phillip Hammond is also a supporter of a customs union.

These developments follow the House of Lords arranging a vote on an amendment to the EU withdrawal bill which would keep the UK within the EEA. The Brexit committee also urged the government not to rule out EEA membership and said the UK should consider membership of EFTA after Brexit.

The goings on at Whitehall have also provoked action amongst Labour supporters. Keir Starmer has designed Labour’s Brexit policy to be just softer than the government’s. This move by Theresa May may bring the supporters of EEA membership within Labour Party finally out into the open. Stephen Kinnock MP wrote an opinion in the Guardian this morning supporting EEA membership. Many MPs and a large percentage of the membership support EEA membership and with a need to retain it’s Remain voting supporters it might now make electoral sense for Labour to back EEA membership.

However, with more socialist members of the party resistant to the single market Labour might be left with an identical Brexit policy to the government. Emily Thornberry has spoken out against EEA membership telling Labour members it will not work.  She said a “British bespoke deal” was needed instead.

Nevertheless, Labour may become increasingly tempted to back EEA membership especially with the rise in support for the Liberal Democrats in the recent local elections.

Analysis from Iwan Doherty, Editor in Chief

This is now the second time Theresa May has copied Labour’s proposals on Brexit but the PM copying Keir Starmer’s work is not a bad thing. This is another short burst of realistic thinking from the government but our negotiators have really lacked creativity and we are paying the price for that.

Johnson is right. It may well limit our freedom to trade with outside nations, if negotiated badly, and create more bureaucracy but the Brexiteers have yet to make a single realistic suggestion of how to solve the problems we face as a nation. May needs to start making practical suggestions, or they will remain on the backfoot in negotiations that the EU has dominated so far.

A customs union negoiated properly that will allow us the freedom to strike trade deals with other nations but bide us to some EU regulation could be a very attractive option, if Davis and co can grind out such a deal in Brussels.

Whether the Brexiteers will allow May to pursue a customs union is another question. Without any ideas of their own, they would be left to diffuse the bomb that is Brexit with no tools and no clue and whilst they may hate the idea of a Remainer pursuing a moderate Brexit their own political survival might be important to them.

I fully expect a large faction of Labour to start supporting EEA membership, but Labour should be careful not to alienate voters outside of London who see freedom of movement as a key reason for their vote for Brexit.

2018 Local Elections – What to look out for

Local Elections are rarely seen as exciting, usually being left to the political hardcore and locals who are annoyed about dog mess and potholes. Turnout is lower, coverage slimmer and the issues a little more niche.

However, with no national elections in May 2018, the Locals will take centre stage are they are not without intrigue. The political map continues to be in a state of rapid change following the General Election last year, and anyone who can predict with certainty what will happen on Thursday 3 May is bluffing.

With Local Elections taking place every four years, it’s worth remembering the last time these seats were up for grabs in 2014 the EU Referendum was the promise made by David Cameron, who looked certain not to be Prime Minister after 2015. UKIP appeared to be on an irresistible rise and the Scottish Referendum looked like being a rather dull, inconsequential ‘No’ result. How wrong we all were.

So if you’re staying up all night on May 3, or just wondering how to cut through the parties spin the morning after, here are a few things to look out for.

Lib Dem revival in cities?
Ahead of the 2017 General Election the Lib Dems thought they might be in with a chance of capitalising on the Brexit positions of Labour and the Tories by offering a second referendum. While it didn’t work in terms of seats, there are a number of big cities who voted overwhelmingly Remain with elections on May 3. If the Lib Dems can take back ground in Leeds, Birmingham and especially Manchester and Newcastle where they have previously been strong, it may indicate a revival in fortunes.

Mayoral elections
Elections for Mayors in some London Boroughs and the Sheffield City Region are not of interest, with the only question being how big Labour will win. In Hackney and Newham, where the divisive Robin Wales is no more, vote shares of 80% could be on the cards. The interesting race of the evening is Watford where the Lib Dems will be looking to hold on in what could be a three-way marginal.

Can Tories hold on to London boroughs?
London will be the focus of the night, will all boroughs having all-out elections. Labour will be expecting to make big gains, but there are a couple of boroughs that will give an indication of the scale of change in the capital. Barnet is almost certain fall, with the Tory minority administration needing to lose just one seat to Labour to be ousted. The Tories will be most worried about some of the traditional London heartlands though. Watch out firstly for Wandsworth, where Labour will look to improve drastically on their 19 seats won in 2014. If the night is going spectacularly badly for the Tories then Westminster may be at risk, where they current have 44 of the 60 seats. Lastly Hillingdon would be a huge prize for Labour, in Boris Johnson’s back yard, but they’ll need to gain at least 12 seats from the Tories to take control.

What will happen in Kensington and Chelsea?
Perhaps one of the more interesting London Boroughs, less than a year after the Grenfell disaster and the shock election of a Labour MP in Kensington, will Labour be able to take the next step and win control of the council? Labour will need to have an outstanding night to do so; starting off with only 11 of the boroughs 50 seats, but a solid local campaign and well-liked MP in Emma Dent-Coad will increase the chances. However they do face problems with a local party Forward Together postiviely splitting the progressive vote.

What happens to the UKIP vote?
With these council seats last contested at ‘peak UKIP’ in 2014, it will be interesting to see where their vote goes following the collapse of the party since the EU Referendum. UKIP won 163 council seats in 2014, but that number has reduced with by-elections and defections, meaning they go into the night with just over 150 seats on the line. It’ll be especially interesting to watch the result in Great Yarmouth, where UKIP secures over 40% of the vote in 2014 before plunging to just 6% at the 2017 General Election. There are plenty of other councils where the dispersal of UKIP votes could decide new administrations.

Will Labour progress in their target seats?
The surprising results of 2017 mean that there are now a whole host of Labour/Tory marginal seats that will become the focus of much campaigning in the coming months and years. Top of the list is Thurrock, where Labour fell only 350 votes short of taking the Westminster seat in June. Also worth watching are the unitary authorities of Swindon, where one of the parliamentary seats now has a Tory majority of around 2,500, and Milton Keynes, where both Westminster constituencies have majorities around the 2,000 mark. While these councils only have a third of the seats up for election, Labour will be looking to ‘win’ on the day, in terms of vote share and number of seats. Trafford is another Labour target, made up of 3 Westminster seats, which include 2 Labour hold and one now considerably more marginal than before.

What will happen in the 2017 surprise seats?
The first indication of whether Labour will be able to hold on to some of their surprise gains from June 2017 or if the Tories are set to take them back next time round. Look out especially for Ipswich, a perennial battle ground where Labour currently control the council and have the MP. Derby is also interesting, following the re-election of Corbyn ally Chris Williamson in 2017 after he lost narrowly in 2015. Kirklees Council features the Westminster seat of Colne Valley which Labour took from the Tories last year and which may be in play next time round. Also look out for the result in Plymouth, where Luke Pollard won the only Tory constituency in 2017 and where Labour will look to take control of the council this time round.

The death of the Liberal Democrats could create a more dangerous centrist party

The Observer recently revealed that, for the past year, business leaders and philanthropists have been developing a new centrist political party, in an effort to help “Break the mould of Westminster”. Led by LoveFilm CEO Simon Franks, the Project One movement – though it is safe to assume this is a working title whilst the party structure is formed – aims to break ground in the coming year, with significant financial backing and rumoured links to key centrist figures, potentially including Tony Blair.

Perhaps the least surprising aspect of the story, however, has been the response from the left and commentators from that political position. Quick to denounce the proposed party as irrelevant and simply the Liberal Democrats in a new format, it is a striking consensus amongst the left that the Project One movement is, from the very offset, doomed to fail before it starts. As Matthew Cole entitled his somewhat scathing dismissal of the proposed movement, “A new centrist party for Britain? Good luck with that.”

However, such willingness, and apparently joy, to leap to conclusions that the Project One Movement will have no impact are somewhat naïve. By no means do I suggest that, instead, the Project One movement will be in Downing Street in the blink of an eye – far from it. The direction of the movement is yet to be established, but it is widely reported that the party will focus primarily on local elections and activism before moving towards national elections.  It is almost certain that, at least for the remainder of the decade, the political landscape in Britain will remain largely unchanged; as we are begrudgingly dragged by the Conservatives towards the inevitable hard Brexit very few signed up for.  The current British political climate, however, seems poised for some form of revival and revitalisation as we approach the new decade – and, if the Left is not careful, such revitalisation may just come from the often-neglected centre ground.

Opinion polls serve as the perfect example of why Centrism has been overlooked for providing this revitalisation. As of March 18th, YouGov polling put the increasingly right-wing Conservatives at 44%, with Corbyn’s Labour second at 41%. The Liberal Democrats, apparently perceived as the indicator of Centrism in Britain, polled at merely 8%. From this data alone, it is an easy conclusion to assume that centrism is losing its footing in the increasingly polarised political landscape of Britain. There are, however, several reasons why this is wrong -and why the Left should be conscious of the attempted Centrist resurgence of Project One.

Primarily, the assumed failure of Centrism in Britain is down to the polarisation of British politics. With the Conservatives increasingly leaning further to the right, and Corbyn’s consolidation of Labour making the party move closer towards its socialist roots, the previous conditions of the mainstream parties as near carbon copies of each other are gone. By no means, however, does the polarisation of the traditional parties equate to the full polarisation of the electorate. Centrist tendencies do largely remain in Britain; many who voted Labour or Conservative in the last general election were, in fact, centrists, aligning themselves with the political party they deemed most appealing.

Therefore, the apparent continuation of this national programme of radicalisation, of both Labour and the Conservatives, has led to the increasing alienation of these ‘swing centrists’ of the 2017 election. The fortification of socialism in Labour rhetoric increasingly alienates the moderate aspects of the party, in the same way that conservative incompetence and hard-line policy choices have begun to alienate moderates on the right. Similarly, it was only in recent history that a Blairite Labour party won three consecutive general elections, on a platform of centrist political ideas and liberal capitalist governance. Unless the Mandelson propaganda machine was the most effective political influencer ever to exist, it is not an inconceivable concept that the British electorate is open to the ideas of centrism.

Indeed, large proportions of the British electorate are themselves sceptical of the increasing radicalism of the traditional parties. On the right, the incompetence of many senior ministers (notably a certain Mr Boris Johnson) have led to increasing questions about the ability of the May administration to break the mould of national stagnation in Britain, brought about as a product of severe austerity. Similarly, the whirlwind rise of ‘Corbyn fever’ has gradually begun to slow down. Though the true extent of the issue with Labour remains contested. With the combination of ineffectiveness and scandal miring the traditional parties, and in turn gradually increasing the public perception of current politics as ‘out of touch’, a new and fresh political approach from the centre may lead to widespread support, from both the disillusioned moderates and the often-forgotten swing centrists.

There is, however, one key question that attributes to the oversight of the traditional parties towards British centrism – if centrism is still popular in Britain, why have the Liberal Democrats not capitalised upon it? Put simply, it is because they are incapable of doing so. In a previous article for The Peoples News, I discussed the possible ways in which the Liberal Democrats could begin their potential resurgence; breaking the old and stagnant image of the party and its unwavering Europhilia, in order to appeal to swing voters and British moderates. The Liberal Democrats have done none of these things. The party clings to the old guard under the stewardship of Vince Cable; though an exceptionally capable politician, he is a leader out of touch with the current state of British politics, and one who continues the impossible fight against the inevitability of Brexit. Perhaps the only thing that the Liberal Democrats have done to ‘revitalise’ themselves is half-heartedly try and appeal to what they believe are the political interests of the youth vote; attempting to poach votes from the unwavering Labour youth support, with half-hearted promises of legalisation of Marijuana. It is, rather sadly, evidence of the continued slow death for the party.

The decline of the Liberal Democrats, however, is precisely the reason why the left should be worried by the Project One movement. With the fall of the previously incapable centrist party comes the possibility of a new, more effective centrist opposition. Indeed, if the rumoured affiliation with Blair and other senior figures are to believed, then the party should have potentially significant understanding of how to portray political competency, attractive policy and to appeal to the greater electorate. Neither should the movement be ignored simply due to its infancy. The AfD in Germany was formed as recently as 2013 – and in 2017 has gained 12.6% of the overall vote share. The Movimento 5-Stelle in Italy, formed in 2009, now holds the largest proportion of votes in the Italian parliament. If a political movement has a well-defined strategy, an understanding of how to appeal to the electorate, and what can be described as an increasingly Liberal Democrat-shaped hole in the political landscape to capitalise upon, it is not a wild assumption that they may find significant success when thrown into an increasingly polarised and restless political landscape.

Speculation surrounding Project One movement suggests they will not look to national elections until 2022 – meaning the party should not pose any significant political threat until roughly the time at which Britain formally withdraws from the European Union. If, however, the party can establish a foothold as a rising political alternative over the next couple of years, emerging at the most uncertain time in modern Britain, then it is not an outlandish idea that the Left, if wanting to maintain the success they have found under Corbyn, should be wary of Project One. If not, Corbyn and all those within the socialist Labour party may find themselves facing a revitalised brand of centrism and political opposition; one which may appeal more to the post-Brexit political landscape of Britain as it moves into the 2020’s.

Social Media is shattering the establishment’s control of the ‘Overton Window’

The Overton Window was a term first used in the 1990s by Joseph Overton, a former Vice-President of the right-wing US Mackinac Center for Public Policy, whose founding principles stated that, “The free market is a powerful engine of economic prosperity. We look forward to the day when the myths and fears of free-market capitalism are dispelled.”

He argued that an idea’s political viability depends on whether it falls within the window. Ideas that fall outside the window are to be banished from public discourse since they are out of step with ‘public opinion’.

Notice I have used inverted commas around ‘public opinion’ and that is because that opinion is defined by those who have turned a window into a mirror. They have narcissistically placed their world view at the centre of acceptable thought. ‘Mirror mirror on the wall, whose ideas can I install? Mine of course.’

Chances are that you have never heard of Mr Overton or his window, but you can bet your bottom dollar that our corporate media have not only heard of this particular fenestra, but spend their lives staring through it and polishing the glass. They also stand guard over it and decide what is allowed into view.

And what is in view is all that is in step with the neo-liberal agenda for promoting policies based on austerity for the many and wealth for the few, racism and war. This last given the Orwellian term of ‘liberal interventionism’.

I’ve heard a BBC political commentator claim that the Overton Window keeps out extremes that are both wrong and unworkable. Read that as too left or right-wing but, wait, what about Nigel Farange frequent appearances on BBC Question Time. The window must always be allowed some latitude towards the Right.

There is nothing new about any of this. In the 1950s sociologists Lewis Coser and Ralf Dahrendorf criticised the dominant sociological theories which emphasized the consensual, conflict-free nature of societies. They talked about forces of power, interests, coercion, and conflict. By the time I was a sociology student in the 60s, even Dharendorf was conservative for us as we turned to Marx and the ‘Communist Manifesto’, published soon after the 1848 revolutions in Germany, Italy and France broke all the windows.

Speaking of which I have been reading about the current strikes in France – not much on the BBC or in The Guardian. Who cares? We now have a social media which has turned its back on allowable opinions. The window is now wide open and we can jump outside and change the view.

Modern Monetary Theory holds huge possibilities for the country

There are many visions about how we create a better nation, but almost universally they all aim for the same conclusion. What we also want to achieve is better schools, hospitals, research and development, infrastructure, public transport, policing and more. We want a better quality of life. Yet with every debate about the public sector there is one dividing factor between the two parties.

The cost.

We must be fiscally healthy in order to give the best quality of life for everyone. But what if I told you we could afford it? Because there is a new school of thinking around economics that’s gradually making its way into mainstream debate, titled Modern Monetary Theory.

MMT quite talks about how the “fiat” money system works. The theory examines models in countries like the UK, US, Japan, Russia, China, Australia, Canada and Switzerland, because they all have their own currencies from their own central banks. They can create their own currency in the forms of notes, coins and simply using keystrokes on their laptops with transfers between banks. Key here is understanding that it is impossible for these countries to go bankrupt in regards to their own currency. This is quite different from other countries in the Eurozone, such as Greece, where they are unable to create their own currency. Eurozone nations share the same currency, the Euro, which is controlled by the European Central Bank. They do not have their own individual currency producing central banks.

Countries with their own central bank have one special advantage; they don’t have to first collect money before they can spend. This allows the government to purchase goods and services from the private sector, without needing to raise/tax money first. This also goes for spending on the NHS, education, police services, infrastructure or whatever they so desire. It is after this spending occurs that the government can collect taxes from the private sector.

So many of you will be probably be asking yourselves “If the government with its own central bank can spend money without collecting taxes, then what’s the point in collecting taxes at all?”

Before we go further on why tax gives currency its value we must go further back in time, when taxes were backed by gold. Under the “gold standard” a country’s currency was physically backed up by its access to gold. For example, if at a time gold was worth £30 an ounce, then the holder of £30 could, in theory, exchange their money from the banking system for an ounce of gold. This meant that the country’s currency could not exceed the value of the access to gold stores. But this changed when in 1971 the US president, the then president Nixon, took the USA out of the gold standard and was followed by the rest of the world

But when the system changed the textbooks didn’t follow. If we were on the gold standard and promised to convert dollars into gold at a fixed price, then we do have to be careful about how many dollars we spend into existence. There is only so much gold, so once we start running low on reserves then we compromise the whole monetary system if we spend too much. We may not be able to convert currency into gold. Yet despite this system being replaced we act as if we’re constrained by the same limitations of the gold standard.

The gold standard was replaced by a “fiat” currency. Fiat is Latin for “It Shall Be,” so money is essentially created upon decree. With a fiat currency system there is no physical commodity backing it. So with no gold or silver to give the currency its value we must now understand how tax does.

Instead of seeing tax as a source of revenue for the government we must understand it as a tool. Tax allows there to be continued demand for the currency, giving it value. When the government converts the currency fully over to everyone in the country then this allows people to accept it as their wages, to which then they can spend it on purchasing everyday items you normally buy.

Then we must also think about the taxes that government also impose on private businesses and households. The tax must be paid, and the Central Bank would facilitate these payments between the country’s smaller banks. This means that if you wanted to get a mortgage your local bank would happily do it. This makes you an agent/currency user, and others around you will be using the same currency for deposits, loans or even contracts.

1) Taxes are made compulsory by the government; we pay them by law.

2) The government makes it compulsory that taxes can only be paid with the sovereign currency that the Central Bank creates.

3) Therefore citizens must find a way to acquire this money to pay for taxes

4) Therefore this gives value to the sovereign currency

Countries can make currencies overnight, and they can be accepted as long as there is demand for them. But it isn’t just demand that taxes help with, it also allows the government to control inflation and maintain price stability. How does this work?

Let’s create a scenario that there is a shortage of cars. People have the income to purchase cars, but there simply isn’t enough to go around for everyone (so demand is greater than supply).

But let’s say I’m selling my car, I’ve advertised it across my local community and want to sell it for £700. We must remember that we’re in a time when there’s a lot more buyers than sellers. So if there is six potential buyers that wish to purchase my car, and have around about £2,000 with them, they will start a bidding war. The value of the car goes beyond its original value closer to how much they have to spend, meaning that they have inflated the price. This is a key example of price inflation.

Now imagine if someone came along to the bidding war for my car and obtained a shovel, threatening to hit the bidders with his shovel unless they give him some of their money. He would take the money, but also feel slightly bad for taking so much, and would then leave each person with £1,000. A final bidder might then put down the last bid of £900 and I could accept this price. This is far closer to the original value of the car.

Okay, sounds a bit silly right? But in this scenario the man with the shovel has managed to prevent the car from being grossly inflated and managed to keep it closer to the original price. This is what, in effect, the central government does when it imposes taxes. The man with the shovel represents the government. Central governments take money out of the economy/circulation to keep leveled price stability and stop excess inflation. This works if there is more demand than supply.

I understand that libertarians will be losing their minds and screaming “TAX IS FORCE” with my given analogy. I’m honestly quite happy with that.

We can also turn the tables in a second example. What if there is more cars than there are those willing to purchase them (so supply is greater than demand)? Those selling the cars may be pushed to reduce the price of the cars so those with lower incomes can afford to buy them. But when the central government faces a scenario when supply is greater than demand (possibly because people are deciding to save their money at that time rather than spend it) then they can help increase spending power in the economy. This can be achieved by lowering taxes so that people have more disposable income to spend. So taxes are a tool for balancing the economy.

If you want another cheesy example, look at the private economy as if it was a bird bath. You want to maintain a good level on water in the bird bath in your garden, so that both big birds and small birds can splash in it. What happens if it rains overnight and the bird bath becomes full? Clearly we would need to remove a fair amount of water from the bath. What happens if it doesn’t rain for a long period of time, leaving the bath to have little water or dry up? We would then need to add water into the bath.

If you want to add money  to the private economy, we can:

1) Increase Government Spending

2) Increase Private Investment

3) Increase our exports (depending on the value of the product)

“Ah,” cry those on the right “so what you’re saying is that there is truth to the neoliberal argument for cutting taxes, as a tax cut for the rich means that it will trickle down to the bottom!”

No

When studying economics we use a term called the “marginal propensity to consume” (MPC) which helps us understand how much every extra pounds we receive will be spent into the economy.

The wealthiest have already consumed what they’ve always wanted. By increasing their disposable income they won’t actually add anymore new spending into the economy. We won’t see new spending help create jobs for those who seek work. What this tax cut really allows is for the wealthiest to buy shares, stocks and real estate. These investments with their new disposable income benefits the top 10%. Instead we discover is that such investments actually driving up prices and lock out millions of consumers. Whilst real estate markets could go up in wealth what we won’t see is a large increase in growth and employment. A good economist understands that the only tax cut that creates an economic stimulus is a tax cut on the poorest citizens.

Within the theory of MMT we also empathise the importance of deficit spending in order to create growth. So let’s take it back a step and look at deficits as a whole.

Before we talk about deficits we need to have a greater understanding of about two important sectors of the economy; the public sector and the private sector. Remember, in a country where the government can issue its own currency it is not financially restrained, so for the government sector can receive spending before taxes are collected. This is in contrast to the private sector, which is made up of two parts. There is the private domestic sector where we as individuals and firms consume domestic goods and services that are produced, bought and sold into the economy. Then there is the private foreign sector, which exports and imports goods and services to and from other countries. However, unlike the government sector, the private sector is financially restrained, since it must have money before it can spend. This can be achieved through getting money from the government or exports to other countries.

The deficit is the difference between how much a government spends into the economy in a given year and how much it gets back from taxation. For example, if a government spends, say, £100 million into the economy but only collects £80 million from taxation then our government deficit is £20 million. Neoliberals will screech to no end at how horrible such a scenario is and will label this as uncontrolled spending and want to “balance the books”. But not only do neoliberals wish to avoid deficit spending, many Keynesian economists only support deficit spending at the worst of times. It does sound fiscally irresponsible, so is that the case?

Let’s look at the bigger picture when the government has a deficit. This graph is used by Professor Stephanie Kelton:

The red highlighted line shows the US government’s budget balance (in terms of a percentage of GDP), compared to the black highlighted line showing the private sector’s balance. The bigger the US government deficit became the greater the surplus was for ourselves. Yet when a government budget manages to reach a surplus, the private sector eventually dives into a deficit. This is the other side of the story neo-liberals don’t want to talk about. A government deficit of £20 million means that there is a public surplus of £20 million for the rest of society. So really a government deficit adds pound assets to other parts of the economy. This is completely normal and necessary in order to run a healthy economy. The chart shows this almost like a mirror image between both the government and private sector

If the government seeks a surplus then the private sector would have to run a deficit, unless it ran a trade surplus. To have a government surplus the state has to introduce austerity measures (or directly increase taxes, but the Tories would rather be burned alive before they would try that). For the private sector to afford this they would need to cut into their savings, sell their assets or take our loans on credit (and they would have to pay interest). With less money in the private sector to be spent on goods and services this then strangles growth with increased private debt. Yet politicians on both sides of the spectrum seem to miss this out entirely. We must remember that if a country can produce its own currency then government can never go bankrupt and eventually pay its debts.

If a government has a trade surplus combined with a government deficit, then we can better create growth which takes us one step closer to full employment and price stability.

But this is where we must understand the very limits of MMT, as it’s not a magic money solution. If, for example, the UK wanted to kickstart a massive infrastructure project then it would need the labour, machinery and materials to do so. Money cannot train nurses, doctors, engineers, police officers or teachers. MMT can help pay to utilize resources, but it is not the solution to magically making them appear. Thus, MMT tells us we can only go as far as the real economy will let it, as anything beyond the means of what a nation can actually create is inflationary. It is also worth noting that MMT shows that countries with their own sovereign currency can still go bankrupt if they have too much foreign denominated debt, thus leading to them to devalue their currency and lose the ability to pay for foreign bonds. This is one of the main problems with Venezuela.

However, this is why it is more beneficial to run a government deficit and private sector surplus, since this then creates a greater healthy equitable balance.

The news that the UK government has managed to achieve a lower government deficit brings little joy. Do you seriously picture a family who are forced to choose between heating their home or feeding themselves jumping with joy with such news? Can you imagine public sector workers who haven’t seen a decent pay rise in years leaping over the moon? Will the homeless see their spirits lift and applaud their grand masters in the halls of Westminster? No, they will continue to feel the hardship of Conservative fiscal policy, because austerity is not ending anytime soon. Paul Johnson, Director of the The Institute of Fiscal Studies (IFS), argues that there is still massive spending cuts and social security cuts still to come. He points to the disastrous prison system in England, incredible pressure on local government budgets and a struggling NHS as a consequence of austerity.

But perhaps you don’t have much faith in the IFS? Fair enough, then we can look at the report by the Equality and Human Rights Commission titled “The cumulative impact of tax and welfare reforms”. They’ve analysed the impact of austerity in the UK amongst various groups, finding that if you’re a woman, disabled, have kids, from an ethnic minority or all of the above then you’re disproportionality worse off. And not by a little bit.

As rich men in suits raise their champagne glasses with the cheer of “balanced books” the rest of us pay the price.

So you can see why right wingers despise the MMT argument. It suddenly turns the deficit figure on its head and creates a new debate away from their agenda. How big should the UK’s deficit be?

You see? Suddenly when Conservatives cry that a Labour government would borrow more it doesn’t seem so ugly, and that’s because it really isn’t. This thinking around the theory is backed by numerous academics and economists such as Professor Stephanie Kelton, Professor Richard Murphy, Professor Pavlina R. Tcherneva, Professor Bill Mitchell, Professor Warren Mosler, Professor Abba P. Lerner, Professor Steve Keen, Ellis Winningham, Professor L. Randall Wray, Professor Scott Fullwiler, Rodger Malcolm Mitchell…the list goes on.

And it won’t create hyperinflation. We’ve already mentioned above how we can control inflation by using tax as a tool, but others are simply not convinced. Many on the right argue that simply by printing money we are causing inflation, which leads to hyperinflation. But modern economics shows that we don’t physically print money for everything, we usually just credit accounts online (and in doing so create reserves).

But printing money is normal. It happens, quite literally, every day. The printing of money alone does not cause inflation, it is when a government attempts to spend beyond the resources and productive capacity it has. Any suggestion that money in isolation is inflationary is incorrect. In the examples of Venezuela, Zimbabwe and Weimar Germany a large factor for inflation was due to supply-side economics (cutting taxes and decreasing regulation).

Other reasons that currencies generally tank can be because there is a catastrophic failing in a nation’s output, they could choose to peg their currency or take on large foreign debts. If you still don’t take my word for it then take the word of the Cato Institute. They looked at every single case of hyperinflation in recorded history and found that none could be attributed to policies seeking full employment.

Nor will the taxes create inflation. It is true that taxes on business activities will get passed on to consumers, assuming they can get away with it. But, technically, this isn’t inflation. Inflation is defined as a continuous increase in the general price level of goods. When we see a tax hike imposed on businesses it is a one-off price increase, so it is not a continuous rise. While taxes can serve several other purposes besides just fighting inflation, the goal with an inflation-fighting tax is to reduce private sector spending.

We must remember that there is more than one tax and not all will be as equally effective at such a task.  While taxes function to prevent inflation, that does not mean that we should use adjustments in the tax code in order to fight inflation. We could use a job guarantee scheme for such a task, but again that can be a discussion for another day.

Labour could promote truly progressive policies if it embraced Modern Monetary Theory, it could go about it’s radical transformation of the country whilst staying fiscally responsible.