Saturday 16 May 2020

Don't let the crisis go to waste

It is no surprise  that the Treasury's recently published options for economic policy once the pandemic is seen to be under control include continued government austerity, a public sector pay freeze and tax rises - but along with the Keynesian option of government-stimulated growth.

The proposal of yet another public sector pay freeze has received scorn. It  would  include the heroes of the moment: nurses, care workers, ambulance men and women,  and local government employees, including the bin men who still operate  with great efficiency here in Kirklees.

"They wouldn't dare: it would be political suicide."

Don't you believe it.  Actions which before Brexit  "No British prime minster could possibly contemplate," such  as a border between mainland Britain and Northern Ireland, were implemented and even applauded as successes in order to "Get Brexit done."

We shall not be far out of the lockdown before the hard-line Tory voices begin mouthing that the government's deficit for this year has reached more than £300 billion (as against an anticipated £55bn) and we can't carry on spending money that we haven't got.

Well, we now know that the last part of that statement isn't true. There is a "magic money tree:"  The government can spend as much money as it likes because it creates it.

Now to nail another lie: that it has to be paid back by future generations.  Not true: this is largely* money that we owe ourselves.  I happen to own part of the UK's National Debt becasue I have some National Saving Certificates.  I pay taxes to the government to enable it to compensate me for the loan by paying me interest.  The same applies to anyone else who has National Savings, a managed pension fund or even owns Premium Bonds.  What goes round comes round .  In economic parlance we call it the "circular flow of income."

So what should the government do once medical conditions permit?

Follow the pattern set by by our government after the last major crisis, which had dimensions even greater than this one, the Second World War.  

Then the government had paid the wages of a huge proportion of the workforce, the people in the army, who contributed nothing  to the consumer goods and services the economy craved, not for a few months but for five years.  A huge proportion of industrial capacity was devoted to producing goods of no consumer value  and the government bought the products, armaments, in order to prosecute the war.

By 1945 the government debt was enormous.

But  the government  had the courage to continue spending to expand the economy, the tax take increased  and the massive accumulated national debt brought down to manageable proportions, generally accepted as below of 60% of GDP.

A government of equal vision and courage would continue to spend, rebuild and  sustain demand and expand the economy.  Key public workers at the lower end of the pay scale  should be given the rises we all now know they deserve.  The private sector (low paid carers in hedge-fund-owned care homes, for example,) will be forced to play catch up.

Taxes should certainly be raised, but the government should be careful which, as some take more demand out of the economy than others.  VAT could be lowered, becasue that affects the poor most.  

The standard rate of  income tax could remain as it is for the moment, but plans made  to raise it gradually to 25%. The higher rate of income tax could be increased because the people who get that kind of money are more likely to spend it abroad rather than in this economy.  More importantly, we should take a long had look at taxes which don't affect employment and income: land taxes and wealth taxes.  And we should take an even longer and harder look at those who make money in this country and pay only modest taxes, and those rich people  and companies who avoid British tax by basing themselves in overseas havens

Inequality should be reduced by improving the social security safety.  The best way to do this would be to introduce the idea for which the  time has come, a Universal Basic Income (UBI) . 

The government has put its toe in the water for this by paying 80% the incomes of furloughed worker, and extended the scheme for anther four months.  The details to extend this to UBI would need to be hammered out, but the principle is that everyone, babies and school children, students, those in work and those out of it, and the retired, receive just enough to get by.  Recipients of the state retirement pension allegedly already get it.  Miyabe the current rate would be a useful benchmark starting rate.  The rate for babies and dependent children would be lower, and there would be extra for disabled people and those with special needs..

When they first proposed the idea the Green Party argued that it could be financed by ending  all tax allowances, so that all income from the fist pound earned, would be taxed.  The arithmetic of this has been hotly questioned but the Treasury, Universities and Think Tanks could do some work on it and give us some idea.

The late and very great one-time Liberal MP for the Colne Valley, Richard Wainwright, argued that effective politics was rather like sailing: you had to "catch the wind." 

The wind of change created during the pandemic is blowing in the direction of a fairer, better protected, more equal society.  The opposition parties should get together and formulate proposals to achieve one.  We mustn't let the Tories, sadly for the moment in power with a fake 80 seat majority in parliament, far from representative of the people, revert to the "normal" which so favours their backers.

* This is true for debts which is internally financed, which the majority of it is.  If we borrow from overseas we gain a chunk of someone else's economy, so then future generations will have to pay it back if this one doesn't.


  1. So basically you're saying that this crisis shows that you were right all along, and makes clear that going forward it is vitally important that we implement all the things you were already agitating for long before anybody blended that bat in China?

    Good thing nobody else is taking that line, or we might just think that everybody on every side is blindly claiming that they have been proved correct, and they can't all be right, so really we're no farther on than we were before.

    1. Yes to your first paragraph, though I wouldn't call it agitating; just legitimate democratic campaigning. After the crisis people will I expect, have a better appreciation of the importance of the state and collective caring action. If the wind does change in this dierction we must not miss the opportunity.

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