‘A disciplining device for governments’

As a new study seems to suggest “COVID-19 is as dangerous as Ebola” then I fear we shall be living with this plague for some long months yet.

Progressives will certainly want to get a better, more caring society out of this crisis as well as a fairer, more humane economic system. And it looks as though time may be on our side, because financial cracks will, I suggest, inevitably become more apparent, as we stagger on with a talentless government at the helm.

Whilst an immediate aim must be to to ensure that people who are fearful for their health are not fearful too, for their economic survival, the next one is to nail home that the state creates money at will.

It follows from this that money creation is intensely political. Who is this money created for?

If we know that government creates money then we need also to point out that ‘debt’ for a currency issuing government is academic rather than absolute.

Indeed even Simon Wren-Lewis pretty much agrees when he says of deficit targets:

These targets are there not because high deficits will be the end of the world – far from it. Instead they are a disciplining device for governments. In the past it was thought they were needed to stop left wing governments spending too much, but in the UK and US the more likely problem is of right wing governments taxing too little.

A ‘disciplining device for governments’ describes the neoliberal financial narrative in one short phrase.

So it has to be clear that this crisis shows that governments don’t need disciplining.

They can create welcome credit for banks, companies or individuals and thus debt for themselves.

We must not forget that the government is us (though with the current one it often doesn’t feel like it) and when it creates its own debt we must ask who exactly is this debt owed to?

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Comments

  1. Bill Hughes -

    Yes, you have sumarised the situation perfectly. The emperor/empire of fiscal rules has been shown to be naked and the magic money tree is now coming into its own. We should no longer be ruled by debt but should be directing all our economic resources to our very survival as a living planet and human race.

  2. Peter May -

    Entirely agree about debt. Unimportant. All the more so if compared with the climate!

  3. Tracey Chatfield -

    Stick to food and drink, at least you know something about that!

    1. Peter May -

      I would – if only you could tell me where I’ve gone wrong?

  4. Ian Stevenson -

    There is a clear choice- direct financing and keep most businesses in business, OR allowing businesses to fail because of banking rules and see the deepest depression since the 1930s.
    There is little possibility of inflation in the near future. Inflation is usually associated with more demand than can be supplied, or a shortage of labour or a surge in commodity prices. Once the businesses are back in operation, the need for direct funding will fall.
    In the 1930s we had a decade of suffering. In the 2008-present we had another decade of needless suffering due to out dated economic policies.
    Must we do it a third time?

    1. Peter May -

      Agree with your last point – with 20% unemployment in the US – still supposedly the world’s largest economy demand will collapse or has already…

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