Monday 4 May 2015

Running the economy is like running a household. Not.

Just in case you meet someone who says a) Labour should have mended the roof when they were in power or b) running the economy is like running a household budget.

a) Governments borrow money. Labour borrowed money. At the time the Tories said that their spending plans would have been the same as Labour's. If we're after analogies on this one, the Tories behave like the drunk who tells you not to be drunk. Pot. Kettle. Black. etc. Even so, no business under capitalism, runs without borrowing money. In some textbooks, this is what they say is unique and brilliant about capitalism. Or indeed, why early capitalists had to find ways of getting round the usury laws in order to get business going…etc etc.

b) a national economy is not like running a household because of i) the link between spending and income. When a government spends, some of its spending goes on paying people who then pay tax back to the government with what they're paid. That can't happen in a household budget. ii) What's more some government spending is on projects that generate wealth - which cause new businesses to be created e.g. a new railway may well cause new businesses to be needed to make stuff to create, service the railway and then to be created near where the railway is. Again, not like a household. Or, indeed,(iii) government spending on hospitals and schools can 'cure' people or educate them so that their 'labour power' is valuable enough to be able to go to work, and pay taxes i.e. income to the government. And (iv) in the case of the UK economy, it can issue currency ('print money'/ make 'magic money'. This will alter the value of money itself i.e. devalue it, make it worth less in the international currency markets. This will make UK goods cheaper when non-UK countries buy them. Issuing currency will nearly always also enrich the rich. The UK have issued £350 billion in the last 5 years. Saying that the UK was 'like' Greece or Portugal was a lie, is a lie. Those countries can't issue currency. That's why, when BBC interviewers etc keep saying we were or are 'living beyond our means' it's meaningless and misleading.

c) One of the big fibs to sustain the fib about 'household budget' is that bankers were or are about to come and say that the UK 'household' was or is being profligate… or "The bankers are losing 'confidence'." This is what Paul Krugman calls the 'confidence fairy' - a bit of propaganda to make us scared and think that making poor people poorer, and that we should have worse public services and welfare, is the best thing to do….'it's an emergency - quick close a library'. I have yet to see anywhere that anyone or any institution was going to, or is going to lose confidence in the UK. It was a scare tactic to justify the LibDems going into coalition with the Tories and for them to approve e.g. cutting 5 million public service workers' wages, bringing in bedroom tax, attacks on benefits etc etc.