This post will start with a bit of consumer advice, and then extend that idea to government spending.* So what’s the advice? Cashback. I love cashback. Like many people, I regularly buy stuff online. It’s often cheaper and more convenient than the highstreet. But an added attraction for me is cashback. Click through to a site where you want to buy something from a cashback site like topcashback or quidco, and you could save up to an extra 10% plus on whatever you buy. Most major online businesses have affiliates programmes with the cashback sites, so it’s well worth checking before you buy anything if you could get cashback as well.
There are many credit card companies that also give cashback each time you use one of their cards to make a purchase. If you’re someone like me who pays off their balance in full each month, this makes owning one of these cards an absolute no-brainer.
But what has this got to do with government spending? Well just like me, the government also has a cashback credit card; only theirs is super platinum. I only get a couple of % cashback when I spend, and then only on certain things, and I have a strict credit limit. The government by contrast, has no credit limit and gets cashback every time it spends in the form of tax revenue. And as every (or nearly every) transaction made in the economy is taxed, ultimately the cashback on all government spending is 100%. Some of the spending will leak into savings, so it won’t get it all back straight away, but at the end of the day, while the money the government has spent is circulating, it will be getting taxed and coming back to the government.
Once this point is understood, the common question “How are you going to pay for it?” whenever a political party suggests a spending policy, seems a bit silly. The spending will pay for itself. Instead, politicians should be concerned with important questions like are there enough jobs for everyone who wants one? are living standards rising for all, not just those at the top? To get positive answers to these questions, they need to ensure they spend enough money into the economy, creating it out of thin air like the banks if needs be.
The common retort to hearing this argument from the less imaginative will be “Great, a magic money tree, let’s just print £1m for everyone and we’ll all be rich!” This argument fails, because what is not being said here is that there are no constraints on what a government can spend. While the super platinum card has no credit limit, there are real constraints. Once an economy is running flat out, if the government keeps spending, prices will start to rise – inflation would be the result. So the super platinum card needs to be used wisely. As long as it is used wisely though, there is no need for us to put up with high unemployment, rising poverty and falling incomes. It is within the government’s power to do something about it if they just unleash the power of their super platinum cashback credit card.
* This is an idea I’ve nicked after reading a comment by Neil Wilson under this post. I’m running with it because it struck me as a great way to try to visualise government spending in a way that runs counter to the common narrative.
UPDATE: As Neil points out below, he expanded on his super platinum card idea a post on his blog a couple of years ago. It’s excellent. Read it: http://www.3spoken.co.uk/2011/01/how-governments-super-platinum-credit.html