We do the work. Someone else takes the wealth.
Economics is easy
During the 2010 election campaign I heard the columnist Kelvin Mackenzie talking about economics.
“Economics is very complicated,” he said. “You have to be a genius to understand economics.”
This is not true. Economics is easy to understand. Wealth comes from human beings. It’s as simple as that. It comes from human beings engaging with nature in an intelligent and productive way in order to make all of the things we want and need. It is work that makes wealth.
The reason that modern economics has become so complex is that it has attempted to obscure this simple fact behind a fog of distraction in order to hide the processes by which a very few people have become more and more obscenely wealthy, while the rest of us are being squeezed to the point of desperation.
We do the work. Someone else takes the wealth.
We’ve been living under an illusion for the last 30 years or so. The illusion goes under the collective name of “Monetarism”. It is also sometimes known as “Thatcherism” or “Neoliberalism”. In the US it went under the name “Reaganomics”.
It is the idea that the market knows best, that everything in the public sector is bad, and everything in the private sector is good, that the private sector only needs to be deregulated for it to provide wealth for everyone. Take away the fetters and wealth will expand, it says. If the rich get rich, we all get rich as a consequence.
The idea was that the rich are “wealth creators” and the wealth they generate will eventually “trickle down” to the masses.
Do you remember being told that?
Actually it turns out that none of this is true. The rich aren’t “wealth creators” at all, they are wealth extractors. The world hasn’t been becoming richer, it has been becoming poorer. The wealth hasn’t “trickled down”, it has been siphoned up. The rich have accumulated even more wealth while the poor have been shafted.
Do you ever get the feeling that we’ve been ever-so slightly conned?
I was listening to the Secretary-General of the Organisation for Economic Co-operation and Development on the radio. He was here to meet the Chancellor of the Exchequer to discuss Britain’s economic future.
“The market has confidence in Britain,” he said.
That is actually a very revealing statement. What it tells us first of all is that he thinks he knows what the market thinks. You wonder how he is privy to such information? Does the market talk? Or has the Secretary-General learned to read its collective mind?
Secondly it tells us that the market has human responses. It can have confidence in things - or not, depending on the circumstances.
Thirdly it tells us that Britain is one of the “good guys” in market terms, that is, it is doing things that the market likes; whereas other countries presumably are the “bad guys”, doing things of which the market does not approve.
The question that arises from this is what we think this thing called “the market” actually is.
It doesn’t take all that much thinking about to realise that the question itself is wrong. It’s not “what”, it is “who”.
The market is not like the weather – some natural force which shifts according to laws over which we have no control - it is a bunch of people who, through their control and manipulation of various financial levers, are able to tell us what to do. It is not a law of nature, it is the mechanism by which we are ruled.
The “confidence” we are talking about is a kind of collective pat on the back for the British government for doing as it is told.
What we are seeing is a coup d'état against our public services. Public services are being cut in order to serve the interests of the markets.
Our choice in the general election was between a government which said it would cut public services immediately, and one which promised to do so at a later date.
The choice we didn’t get was for a government which would put the interests of the public first.
So that’s what we chose: a government intent upon making cuts. It’s cuts across the economy. Almost £2 billion in cuts immediately, and then another £8.4 billion in “reviews”. Reviews refer to cuts that haven’t happened yet, but which will happen in the future.
There are plans to cut a scheme that would extend free school dinners to primary school children, plus one that would have seen 7,000 new homes built. There are plans to cut over £1 billion from council budgets, to scrap free swimming for children and pensioners, and to cancel a hospital being built in Hartlepool, amongst other things. Cuts, cuts, cuts.
We were promised no cuts to front-line services. You can’t get more “front-line” than a hospital.
The cuts are being implemented in order pay off the deficit.
The deficit represents the difference between what we are earning as a country, and what we are paying out. We are paying out more than we are bringing in. In order to cover the difference we have to borrow. Last year we borrowed £170.8 billion. This year we are set to borrow £167.9 billion.
We do this by issuing bonds, known as gilts. These are essentially promissory notes: IOUs. In other words, we hand out a big pile of paper, and we get a big pile of paper in return.
Actually, we don’t even get paper in return. We get credit on a computer screen. They just add a few more noughts onto the end of the noughts we already owe.
Now here’s the question: who exactly do we owe all this money to? That’s when things start to get really murky. It’s not at all clear.
Mainly, it seems, we owe money to “financial institutions” in the UK. Banks, in other words. We also owe 35% of our national debt to “overseas investors”. We can assume these are banks, too, in some form. They lend money, so they must be banks.
In other words, we are cutting public services in order to service interest on debts owed to foreign banks.
Tell me: at what point did we vote to give our sovereignty away?
Deficits are a good thing
Meanwhile the cuts have hit home in our local area with the announcement that up to 200 council jobs are at risk as Canterbury City Council is set to lose a third of its government grant.
We all know why this is, of course. We’ve been told often enough. It’s that pesky deficit again.
The problem with this is that actually it isn’t true. In the past deficits have always been seen as a good thing.
The post war boom in Europe was funded by a deficit. The New Deal programme of Franklin D. Roosevelt, which brought America out of the Great Depression, was funded by a deficit. The Industrial Revolution was funded by a deficit.
It is deficits which fund industrial and social expansion. It is deficits which pay for public services and infrastructure and everything which makes the economic world go round.
It depends on who you owe the deficit to. Effectively a deficit is a borrowing from the future. It is borrowing on the prospects of future earning.
Traditionally deficits are funded by state owned central banks. The bank simply credits the government with the money and the government spends it into existence by funding large scale infrastructure projects: creating jobs, spending, and serving the interests of the economy as a whole.
The problem with the current deficit is that it is being funded not by a publicly owned central bank, but by borrowing from private banks. Private banks create credit in exactly the same way that central banks do: they simply write the money into an account, which is then “owed”.
The difference being that private banks charge interest, thus making the money more expensive. The future is expected to pay back more than the present borrowed.
The banks almost crashed the world economy back in 2008, having made a bunch of bad loans in pursuit of quick profits. The economy was only saved by the public sector bail out.
In other words, rather than running a deficit in order to fund public services, we are cutting public services in order to prop up a bunch of greedy private speculators.
How crazy is that?
© 2010 Christopher James Stone