Government choices never need to be funded

When money is used to represent resources knowledge of how it is created is a democratic imperative.

When people do not understand that there is no trickle down but a lot of hoovering up and that privatisation allows a small number of people to extract – in effect – rents from everyone else rather than a much flatter general distribution while providing for collective needs, then that ignorance guides choices that are made.

Privatisation used to be justified on the basis that the private sector was so much more efficient than the government. But that idea has been widely disproved, with everything from G4S failing to provide the staff they promised for the Olympics, the stuttering disaster of rail privatisation and the complete failure of Carillion. Indeed, worse, in all cases the allegedly inefficient state has had to step in, at short notice, to stave off disaster.

In spite of this evidence, our ideological government persists with ‘contracting out’, but perhaps as most Conservative party funds come from corporations and their heads – notably bankers and construction firms this should not greatly surprise us.

But it is not just general ignorance, it is even more dangerous – complete misunderstanding of money creation. People usually imagine that because ‘there is no money’ inflows of private capital will help the impecunious state. Whereas in fact we are helping a relatively small number of corporations to capture income streams and all that to the benefit of a tiny minority comprised seemingly never of the staff, but only the board of directors.

It needs to be understood that when all money is created by the state, decisions never need to be funded – funds can be created at will.

But what they do need to be is resourced and the government misleads us every day when it implies taxes fund spending, when in fact the reverse is true.

Of course the usual argument against funds created at will is that there will be rampant inflation. That is why decisions need to be resourced – if they are currently unused and available or can be created there is every reason to expect a prosperous and vibrant economy, which is much more likely to increase tax receipts rather than produce frightening inflation.

Understanding the monetary system is vital because if you don’t understand it, when money is so universally used to represent resources you make incorrect decisions, which have not been arrived at on the basis of logic, evidence or justice.

Assessing a financial cost is a matter of maths. What we really need to decide is what sort of society we would like and whether we can release, or create, sufficient resources to deliver it.

As so many of these resources in fact turn out to be those of labour and skills it is deeply disappointing that, according to a recent finding by the Fabian Society, UK spending on education has declined sharply from 5% to 4% of GDP during the past 15 years. That is a failure to invest in the future of our people – all because our government says it lacks funds. It can create funds. What it lacks is intent.

We need to take on board that when we co-operate  – and our monetary system is a outstanding example of a basic co-operative venture – we can collectively provide for education, shelter, health, transport and food, rather than relying on individual efforts, which are both less certain and usually entail less efficient use of resources.

I never understand why people are so frightened that there might actually be sufficient resources to enjoy champagne communism?

What is not to like?



  1. Michael Green -

    The recent MMT post by Alt in Naked Capitalism gathered an avalance of comments, but this one by Redleg should be drawn to attention

    January 23, 2019 at 1:45 pm

    It seems to me that the current government shutdown is a great unintentional experiment.
    If MMT works, there should be a slowdown in the general economy as appropriations diminish and taxation continues unabated.
    If MMT doesn’t work, there should be a substantial increase in private sector spending as government spending competiton wanes, leading to general economic growth.
    Reply ↓

    January 23, 2019 at 2:16 pm

    A great unintentional experiment, indeed!

    Although I’d restate that a little:

    If MMT is an accurate descriptive model of the US monetary system, there should be a slowdown in the general economy.

    If MMT is not an accurate descriptive model of the US monetary system, there should be a substantial increase in private sector spending…leading to general economic growth.

    The mainstream “model” of how the US economy works is descriptive, i.e., claims to describe how the economy works, but it is not accurate, because its predictions (for example, that cutting taxes on the rich will lead to economic prosperity for the many) have empirically shown to be false.
    Reply ↓
    January 23, 2019 at 3:25 pm

    Amen to those changes.
    Reply ↓
    January 24, 2019 at 9:42 am

    Anyone have a quantitative model that predicts how long the shutdown in the US has to go on before we see a slow-down, and of what scope?

    Without that, we got nothin’ either way — because a model that works at the limit that we never reach, is a useless model (I’m looking at you, almost all economics using steady state models “at the equilibrium limit”).
    Reply ↓

    Here is the link to the Alt article

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