New data, commissioned exclusively by The People’s News, has revealed that lowering the voting age to 16 would have kept the Tories out of power. The Conservative Party would have won too few seats to have formed a confidence and supply deal with the DUP.Continue reading
Independent statistician- Nigel Marriot:
The chart above shows the Conservatives are making a small recovery from their post General Election dip and have now opened a small lead over Labour. Otherwise, there has not been any dramatic shifts in public opinion. The graph includes the 1st five months of 2010 so that the polling volatility of the 2010 general election campaign can be seen.
Labour have been slipping in recent months but are still ahead slightly from where they were in the 2017 general election. The dominance of the 2 major parties is still holding strong.
One point to be aware of is that the Conservatives current lead over Labour would be higher if it were not for a strong outlier from Survation. Survation was the most accurate pollster in the 2017 general election so it is natural to ask who is right, Survation or the other pollsters? The 9 polls making up my latest rolling average are listed below (only CON & LAB votes shown)
- CON 41 LAB 42 – YouGov 27th February
- CON 43 LAB 42 – ICM 4th March
- CON 41 LAB 43 – YouGov 6th March
- CON 43 LAB 42 – IpsosMori 7th March
- CON 38 LAB 45 – Survation 8th March
- CON 42 LAB 40 – Opinium 15th March
- CON 42 LAB 39 – YouGov 15th March
- CON 44 LAB 41 – ICM 18th March
- CON 43 LAB 39 – YouGov 28th March
There has also been a Poll released by YouGov that was not included in the rolling average. This was not included in the rolling average due to the fact this is March’s poll tracker.
Con 42 Labour 41 – YouGov 5th April
I have written a separate post to answer the question “who is the best pollster?” so if you read that, you will be able to make up your own mind. For myself, this is why I focus on 9 poll rolling averages and I prefer to go with those figures rather than looking at individual polls.
Commentary from Iwan Doherty- Editor in Chief
Labour’s lead has been eroded by the Conservative Party throughout 2018 and Labour will need to do something to stop its slow decline in public opinion. The local elections may just be the stimulus Labour need, if they can get the public interested.
Corbyn has spoken of using the elections as a message to the Conservative government on austerity but so far the party’s media strategy, for the elections, has been lacklustre. Labour’s lack of focus on issues have not helped their polling. However, one advantage of an election for Labour is it gets its huge membership out on doorsteps. In my opinion, this was a large factor for their rise in popularity before the general election and we may see similar effects towards the end of April, if and only if Labour can convince people that Labour councils will make a difference to their lives.
However, polling for Parliamentary elections 4 years away from the next election is just like a long range weather forecast, almost meaningless in an ever-changing environment.
When predicting the results of the local elections we must remember the difference in turnout. Labour will be without large amounts of its student support yet and the turnout is much lower than in the generaly election. In council by-elections in March Labour clocked a 2 point lead, at 31.5% of the vote. I do expect Labour to make gains across the nation but mostly in London, where they have a 20 point polling lead. Labour needs to get back to fighting austerity to see their polling lead return.
Tory police cuts come back to bite them, as 55 murdered in London so far this year. If this year’s murder rate continues, there will have been more than 180 murders in London for the first time since 2005. Let that sink in. In terms of peace on our streets, we are going backwards.Continue reading
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.
The government has been forced to delete a tweet published by the Foreign Office regarding the Salisbury attack, capping off a disaster out few days for our Prime Minister.Continue reading
Porton Down has been forced to admit that they have been ‘unable to verify’ if the nerve agent that was used to poison ex-spy Sergei Skripal and his daughter was of Russian origin. Experts at Porton Down, the MoD’s centre for science and technology, were unable to confirm the source of the weapon. This follows after Porton Down were also unable to determine if nerve agent used was indeed Novichok, stating it may be a similar agent.
Boris Johnson however stated “there’s no doubt” that this agent came from Russia, heavily damaging his own credibility, and the government’s.
The government remains convinced the attack was ordered and conducted by the Russian state. Porton Down this afternoon stated, “We have not identified the precise source, but we have provided the scientific information to the Government, who have then used a number of other sources to piece together the conclusions they have come to”.
Analysis from Iwan Doherty, Founder and Editor in Chief
Boris Johnson continues to show he’s not fit for the role of Foreign Secretary with his claims about this attack. If lying about an attack that has put us on the brink of another Cold War is not enough to get you fired then I truly wonder what will be.
The government will see its credibility hit by the release of this evidence and many still dismiss the blaming of Russia as scapegoating an old enemy. This will only bring more strength to the voice of the sceptics, who have seen their case get stronger with every release of new information.
However, it is worth noting that anyone outside the government is working off rumours and fragments of information to build their conclusions. Only the security services, secret intelligence services, and the Russians know what really happened, and neither will release their files.
The editors and journalists of the mainstream media need to take a long hard look at themselves. The coverage of politics we have had to endure this year politics is probably the worst it has been in my lifetime.
Today’s headlines see Jeremy Corbyn condemned for visiting a Jewish group to attend the Seder event, a ritual service held on Passover, “with Jewish members of his local community”.
The reason, the group is not a mainstream Jewish group and has been critical of the actions of Israel. The story is frankly ridiculous. Corbyn attempts to connect with the Jewish community but is criticised, by mainly non-Jews, for meeting the wrong type of Jews.
The whole antisemitism debate has been covered poorly, without scale or background. There has been no mention in the mainstream media of the Labour Leader’s excellent record on standing up to racism, yet they were willing to ask ‘If Jeremy Corbyn was a racist’ due to his comments on a Facebook page on an antisemitic mural.
That was last week, but the coverage has dragged on and on which has led to the suppression of important stories for cheap political gain. No one in the mainstream media is innocent, from the Guardian to the Mail we have seen story after story about Corbyn’s mistake. This onslaught of media outrage suggests that the Labour Party is a hotbed for antisemitism and specifically an issue on the left. However, the statistical evidence demonstrates that Labour Party members are less antisemitic than their Conservative counterparts and that most antisemitism is found on the far right. Additionally, the continuing negative coverage has been criticised by many in the Jewish community who are appalled by those willing to weaponise antisemitism for political gain.
However, the issues I have with this biased coverage is two-fold. This is because the mainstream media is not only exploiting the hurt and pain of the past, but it is also providing a smoke screen for other important issues. For example, the killing of 16 unarmed Palestinians by the Israeli Defense Forces (IDF) on Friday. Those killed were among thousands of Palestinians who were protesting Israel’s oppressive policies along the border when members of the IDF started firing live ammunition into the crowds. Worse still was that the reports describe the events as ‘clashes’ between protesters and the IDF. These were not clashes, but rather indiscriminate acts of aggression from soldiers who turned their guns on an oppressed people fighting for their existence.
The Prime Minister refused to condemn Israel for its actions. I would encourage all citizens to write to their MPs about this attack on Palestinians, as I have today. Whilst the Prime Minister didn’t speak out, Jeremy Corbyn, yet again, confronted the senseless aggression by condemning the actions as “appalling” and demanding justice.
The media is clearly biased against Corbyn, but in case there was any doubt, statistical analysis has revealed that up to 75% of the coverage misrepresents him. However, it is important to remember that it is not Corbyn that they truly hate, but rather the centuries old movement that he has reinvigorated. In other words, his success in fighting for the many will be at the expense of the few who have for too long misinformed and oppressed the masses.
We live in dark days for traditional journalism, which is why those reading should help and support independent media.
Other stories have been missed, including Google’s continued tax avoidance, reports on poor results of Grammar schools and any real investigation into Cambridge Analytica. All stories that the Conservative Party would rather you didn’t see.
The media is biased against Corbyn, that’s not my opinion that’s a statical fact. 75% of coverage misrepresent him. He’s an anti-establishment man, in an establishment game.
I hope the mainstream media improve, it will put me out of business but I still hope they return to sanity. Short of a Charlie Skinner esc character returning there is another option. The independent media, but they need financial help to succeed.
The City. The beating heart of the economy, the nation’s prized treasure – a treasure worth £124.2bn in Gross Value Added in 2017. London’s financial dominance dates back to the 19th century; from coordinating commerce and trade across the Empire, the City has managed to sustain its position at the epicentre of European finance since the opening of the Bank of England in 1694.
Yet the power of the City is under attack; Frankfurt, Dublin and Paris, keen to predate on the lucrative world of London banking, now have Brexit as their weapon for shifting the dominance to the continental mainland. Lloyd Blankfein’s tweet of the “great weather” in Frankfurt is evidence of the danger that a severing from the single market could pose; an outcome that could reshape the structure of the British economy.
Financial services play an essential role in the success of the UK economy. The City employs 454,700 people amongst 3030 financial and insurance firms, which account for 13% of London’s output. At 2013 prices, the sector has grown 50% since 1997 and London dominates the Clearing business, processing euro-denominated derivatives worth $900bn a day. A source of some of the highest skilled workers from the UK and abroad, it is also the largest contributor to the Treasury – tax receipts totalled £66bn in 2015/16. It is also the largest source of British exports – with a £18.5bn trade surplus with the EU in financial services, the loss of this sector to the continental mainland could result in further worsening of the UK’s current account deficit, alongside a further weakening of sterling.
All this, together with the collective lobbying of the financial powerhouses, suggests that the UK will make it a priority to retain the passport rights than enable UK financial services to operate across the Channel. Yet Michel Barnier’s emphatic statement that “there is not a single trade agreement that is open to financial services” is the foundation of uncertainty across the City; an uncertainty that could drive the banks to relocate abroad. At current, banks operate under a passport system – the home country of a financial institution ensures it follows the EU’s ‘single rulebook’, a centralised regulatory framework that replaced mutual recognition of national laws in the aftermath of the Financial Crisis. This allows banks residing in London to access the single market – an access that ends with Brexit.
Such could be mitigated by remaining in the EEA, whereby the UK would have access to the single market on the condition that it applied all EU financial regulation – an outcome that could provoke criticism for failing to deliver the sovereignty promised by Brexit. The UK would lose the ability to influence regulatory changes, particularly significant at current since a number of ‘review clauses’ in the post-crisis rulebook are currently being activated. Thus the UK would remain shackled to the Brussels bureaucrats and unable to impose its liberal views on the legislature – as epitomised by the EU’s consideration of a cap on bankers bonuses, fiercely opposed by the UK. For the once mighty British Empire to subserve itself to unelected European bureaucrats will likely prove a political crime that could spell the end of May’s government in the next general election; and as such, the banks have reason to fear their interest may not be preserved.
In the event of differences in regulation, navigation of the immensely complex channels of financial law will prove highly costly for the financial powerhouses. The EU’s rulebook runs for thousands of pages, a regulatory maze that provides an impetus to relocate to continental front-runners, who are eager to prey on London’s demise. Contingency plans are already being forced into action – with Standard Chartered setting up a Frankfurt subsidiary and Morgan Stanley boosting it’s Dublin office, EY has predicted 10,000 jobs could be lost immediately if no deal is agreed. Brussels’ swift rejection of a plan by a consortium of City executives for mutual regulatory recognition is sufficient evidence for banks to begin forming expectations of their place in the final Brexit deal – an expectation that will see their profits drop and markets blocked.
Yet rational banks will also consider the long-term issues arising from Brexit, particularly one that sits deep within the hearts of Brexiteers – migration. Despite having the largest concentration of financial knowledge in the EU, potential restrictions to the future labour movement in conjunction with a fall in incoming talent from constraints to university ERASMUS programmes could serve to diminish the pool of talent available to London employers, making the EU a more attractive alternative if freedom of movement is curtailed.
The financial system is the engine of the British economy, a national treasure around which domestic policy revolves. Yet analysis of the current evidence suggests that the City is a prime target for an exogenous shock by Brexit, creating a strong incentive to venture out of banking’s European home for the past two centuries and begin a new era on continental land. Whether the allures of the single market are sufficient to overcome London’s unique benefits of English language, skilled workforce and economies of agglomeration – which reduce operating costs across the financial spectrum – is dependent on the final deal agreed amongst the politicians. The banks are braced for the incoming storm; and it appears almost certain that whilst London may not lose its dominance, the Brussels shockwave will likely leave the City in a worse relative position than it has been since before the colonial era.
The Tory led governments since 2010 have a lot to answer for, the austerity policies, the national pay cap and the continued privatisation of our NHS. There is however one area of policy where the conservative governments have failed at a horrendous level. On the issue of homelessness we have seen a failure that has led to a crisis in homelessness in this country. In 2010, when Labour left office, there were 1768 people sleeping rough every night, a reduction of 25% since Blair took office in 1997. A number that was far too high for the 5th richest nation on the planet, yet despite the supposed economic growth we have gone through in 2017 the number of rough sleepers had jumped to 4751. In only 7 years almost 3000 more people were driven out of their accommodation onto our streets.
While this is the more obvious form of homelessness, the true level of “hidden” homelessness is impossible to track. In London alone there is an estimated quarter of a million people who have no fixed address and instead are floating around being put up by a combination of friends and family unable to afford the rent for their own place, let alone the deposit for a house.
The levels of homelessness today can be traced back to Margret Thatcher with her sell off of council houses. The policy which began in 1980 and the “Right to Buy” scheme has left gaping holes in the housing market that are still yet to be filled. Since 2010, the amount of affordable housing built has dropped by 98%. The money gained by the sale of social housing is supposed to be used to build more houses but, perhaps not unsurprisingly, the rate of rebuild is only 1 house for every five sold. After all council housing “just creates Labour voters”.
Not only has this Tory led governments reduced the amount of housing for people to actually live in, their vicious cuts to benefits has also contributed to the massive increase in homelessness. All housing benefits for 18 to 21 year olds have been cut, and as a result more young people ended homeless. When the cap for the maximum amount of welfare one household can receive was brought in, it was the housing benefit that was cut. It didn’t matter that the housing benefit went straight into the pocket of the landlord, all that mattered was the cutting of the welfare bill. The continued cuts to council funding by Westminster is an additional strain on housing services. The obsession of George Osborne of cutting the deficit meant that councils were forced to choose which vital services to cut. Too often this was the housing services directly leading to people freezing on the streets.
A quick google search reveals many of the horrors of being homeless, this story is from Martin from Plymouth. “It all started about 16 or 17 years ago. I split up with my girlfriend, I let her have the flat and the kid and all that lot. Went through the hostel systems, didn’t agree with some of the stuff they done, didn’t agree with the prices they charged. So then I moved in with my brother and he lost his flat. Then I moved in with my little brother. My little brother kicked me out 12 months ago. And two days ago my brother died.” Martin says he is currently sleeping “anywhere and everywhere. It’s cold, wet,” he said. “I’ve been urinated upon, I’ve been spat on, I’ve had food chucked at me. There are good sides to people, people do come up to you and give you food, give you money, speak to you. Sometimes I prefer to sit down and have a conversation with people, rather than have money off them. This world’s messed up and that’s all there is to it. This Government is not doing enough for their own people.”
Its clear to see that there is a real issue in this country that urgently needs addressing. The real question is how? By far the most popular method to reduce homelessness is remarkably simple. Give them a home. The housing first method has been remarkably successful in cutting homelessness in Finland. Approximately 1200 people were taken off the streets in only 6 years. All of this was regardless of any other issues that the person had like drug addiction for example. Evidence collected from areas that have trialed this system showed that it is far easier and more importantly cheaper, to get someone off an addiction if they have a stable home to go to rather than the maze of transitional and temporary accommodation relied upon by the UK’s local authorities.
Another winning feature of the housing first method is national cooperation that it fosters. In order for the scheme to be successful it requires the entire country to be behind it. Once it becomes clear that the homelessness epidemic is being solved by this policy it stands to reason that more and more national problems can be tackled nationally with far more effectiveness that come with the increased economies of scale.
The current charity methods to help prevent homelessness are honorable but completely inadequate. In Royal Leamington Spa, the social inclusion charity P3 are heading out every night to help people by offering advice and getting them away from the dangers of rough sleeping as quickly as possible. However, in just that district, 705 people applied as homeless in 2016. No charity can be expected to cover that number of people. The protection of its citizens should be governments number one priority and we’ve seen a failure in this.
Homelessness is one of the most heart wrenching problems existing in our country today. Over Christmas the stories of people freezing to death broke my heart. It seems so outrageous that in our extremely wealthy country, the 6th richest in the world, there are people who cannot be housed, who cannot be helped. This can be different, it is possible to change all of this and it needs to happen now.
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.
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!”
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.