Money as a tool for human progress

I’m about halfway through reading “Just Money” by Ann Pettifor at the moment. It’s only a short book, but it covers a lot of ground in terms of what money is, where it comes from, how it is being used now, and how it could be used to better achieve some of the progressive human goals we all want to see. Early on in the book, Ann explains the potential implications of the monetary system that has been developed over the centuries. She provides a pretty good description of what our monetary system could or should be used for (building a ‘just and productive economy’) rather than what it is currently being used for (largely financing speculative asset bubbles):

“Monetary systems are one of human society’s greatest achievements. The creation of money by a well-developed monetary and banking system was a great civilizational advance. As a result there need never be a shortage of finance for private enterprise or the public good. There need never be a shortage of money to invest in and create economic activity and full employment. There need never be insufficient money to tackle energy insecurity and climate change. There need never be a shortage of money to solve the great scourges of humanity: poverty, disease and inequality, to ensure humanity’s prosperity and wellbeing; and the ecosystem’s stability.

The real shortages we face are first, humanity’s capacity: the limits of our individual, social and collective corruptibility, integrity, imagination, intelligence, organisation and muscle. Second, the physical limits of the ecosystem. These are real limitations. However, the social relationships which create money, and sustain trust, need not be in short supply in a well regulated and managed monetary system.

Within a sound monetary system we can afford what we can do. Money enables us to do what we can do within our limited natural and human resources.”

The last point there is a key one – we can afford to do what we can do (within the limits of natural and human resources). Money is not a resource that is scarce like oil or coal. You or I can run out of money, but the economy as a whole cannot. This is why the infamous Liam Byrne note saying “there’s no money left” was so imbecilic. In a properly-managed system, there would always be enough money to ensure what we can do is done.

 

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Iain Duncan Smith defies all logic (again). And then there’s Liam Byrne…

Iain Duncan Smith was interviewed for today’s Sunday Telegraph, and is sounding increasingly deranged. Under ever increasing pressure to reduce the welfare bill (an impossible task given the Coalition’s fiscal stance), Smith appealed to wealthy pensioners to ‘hand back their benefits’ if they didn’t need them. So rather than changing the rule on universal benefits (which is a bad idea in itself), he is resorting to trying to make little old ladies feel guilty about their winter fuel payments as though it is costing the nation billions (it’s not). That’s not what I wanted to write about today though. Duncan Smith also said this:

“We want to say to people, you’re claiming unemployment benefit but you’re actually in work paid for by the state: you’re in work to find work. That’s your job from now on: to find work.”

Duncan Smith’s tried this line before. We people objected to job seekers being forced to work for nothing in Poundland he said (of Caitlin Reilly):

“She was being paid for it (working at Poundland), what do you think the taxpayer was paying her for God’s sake? Her job seekers allowance. The taxpayer is paying her wages.”

IDS persists with this idea that the unemployed need to be constantly harassed to get off their lazy arses and look for work, and it informs every aspect of the Coalition’s employment policy. The elephant in the room though is always the tyranny of the maths – 2.5 million unemployed is a much bigger number than the (less than) 500,000 vacancies currently available.

Duncan Smith’s views on unemployment and the unemployed just doesn’t stand up to more than 5 seconds scrutiny, so it got me wondering if maybe he just hasn’t met many unemployed people, and I thought I’d see if there was a negative correlation between an MPs view on unemployment and the unemployment rate in their constituency. Maybe if unemployment is very low where your voters live, it informs your view on the problem and those who are unemployed? So I downloaded the March 2013 JSA claimant rates from Nomis by constituency to see how much of an issue unemployment is in the constituencies of Cabinet and Shadow Cabinet MPs. Here’s the average claimant rate in Cabinet and Labour front-bench constituencies:

JSA Claimant Rate

The claimant rate nationally is currently 3.9%, but in the constituencies of the Coalition “Cabinet of millionaires”, the average rate is just 2.2%, while in the constituencies of Labour front-benchers the average rate is 5.2%, much higher than the national average. Looking at the rates in individual Cabinet Minister’s constituencies we see a pretty common pattern. Unemployment in the constituencies of Cabinet members is typically very low – David Cameron, 1.4%; Nick Clegg, 1.5%; George Obsorne, 2.0%; Theresa May, 1.8%; Michael Gove 1.7% etc. So it may be that in these parts of the country the issue of unemployment is secondary to other issues like planning, wind farms etc. So my hypothesis that low unemployment at home leads to skewed attitudes towards the issue looks plausible.

There are in fact only two members of the Cabinet who have above average levels of unemployment in their constituencies – Welsh Secretary David Jones (who he?) and – wait for it – Iain Duncan Smith! I was surprised to discover that in Chingford and Woodford Green, 4.2% of the working age population are in receipt of JSA. So if Duncan Smith spends any time in his constituency at all, it must be obvious that not all of these people can be lazy scroungers and that there must be an issue around a lack of jobs. Does he think the people of Witney (Cameron’s constituency) are all “hard-working families who want to get on”, while his constituents are all skivers and scroungers? Only someone wilfully blind could dismiss the lack of jobs as the problem and instead blame the attitude of individuals couldn’t they?

But what of Labour? We saw above that unemployment is significantly higher in Labour constituencies than Coalition ones. Does that mean they have more empathy with those who are unemployed and a better understanding of the issue? Ed Miliband (5.9% JSA rate) has talked about returning to the idea of full employment, while Ed Balls (3.2% JSA rate) proposes a new jobs programme for young people. Labour’s ideas are timid and also place a too much of a focus on the individual, but they at least acknowledge the need to actually create jobs. Again then, there’s an argument that higher unemployment in Labour seats makes them more attuned the problem of unemployment.

But there’s one front-bencher’s constituency that has much higher unemployment than any others, with a whopping 9.6% of working age adults claiming Jobseeker’s Allowance. He more than any other must understand that is a chronic lack of jobs that has kept unemployment high surely? So who is this person? Step forward MP for Birmingham Hodge Hill Liam Byrne. This is the man who led Labour’s decision to abstain from the Bill retroactively made legal the Government’s sanctioning regime and consistently tries to ‘talk tough’ on welfare, giving credence to the idea that there are hundreds of thousands out there who are on the take. How can he come out with this garbage representing the constituency he does?

So what can we conclude? In general we might think that if an MP’s constituents are unemployed in greater numbers, the greater will their concern be for the unemployment issue and vice versa. If you are a welfare spokesman though, it seems you have to check your brains in at the door, and compete to see who can talk the toughest. Is that what they mean by good politics?

APPENDIX

JSA Claimant Rates by Constituency March 2013

LABOUR      
MP Constituency Number of Claimants Claimant Rate
Ed Miliband Doncaster North 3,594 5.9
Harriet Harman Camberwell and Peckham 5,403 6.2
Ed Balls Morley and Outwood 2,159 3.2
Douglas Alexander Paisley and Renfrewshire South 3,294 6.0
Yvette Cooper Normanton, Pontefract and Castleford 3,475 5.0
Sadiq Khan Tooting 2,329 3.2
Rosie Winterton Doncaster Central 4,354 6.8
Andy Burnham Leigh 3,030 4.7
Stephen Twigg Enfield, Southgate 2,015 3.4
Chuka Umunna Streatham 4,158 5.3
Jim Murphy East Renfrewshire 1,340 2.4
Hilary Benn Leeds Central 7,521 7.0
Angela Eagle Wallasey 2,719 4.9
Caroline Flint Don Valley 2,761 4.6
Maria Eagle Garston and Halewood 3,474 5.5
Liam Byrne Birmingham, Hodge Hill 6,810 9.6
Ivan Lewis Bury South 2,567 4.1
Mary Creagh Wakefield 3,301 5.3
Jon Trickett Hemsworth 2,849 4.7
Tom Watson West Bromwich East 3,907 7.6
Vernon Coaker Gedling 2,215 3.7
Margaret Curren Glasgow East 3,811 6.7
Owen Smith Pontypridd 1,932 3.6
COALITION      
MP Constituency Number of Claimants Claimant Rate
David Cameron Witney 920 1.4
Nick Clegg Sheffield, Hallam 944 1.5
William Hague Richmond (Yorks) 1,208 1.8
George Osborne Tatton 995 2.0
Danny Alexander Inverness, Nairn, Badenoch and Strathspey 1,738 2.8
Theresa May Maidenhead 1,194 1.8
Philip Hammond Runnymede and Weybridge 968 1.4
Vince Cable Twickenham 1,283 1.7
Iain Duncan Smith Chingford and Woodford Green 2,151 4.2
Chris Grayling Epsom and Ewell 1,010 1.5
Michael Gove Surrey Heath 1,121 1.7
Eric Pickles Brentwood and Ongar 1,194 2.0
Jeremy Hunt South West Surrey 876 1.4
Owen Paterson North Shropshire 1,954 3.1
Justine Greening Putney 1,772 2.6
Michael Moore Berwickshire, Roxburgh and Selkirk 1,962 3.4
Ed Davey Kingston and Surbiton 1,525 1.7
Patrick McLoughlin Derbyshire Dales 675 1.4
Maria Miller Basingstoke 1,825 2.6
Theresa Villiers Chipping Barnet 1,986 2.6
David Jones Clwyd West 1,722 4.1
Kenneth Clarke Rushcliffe 1,180 1.9
George Young North West Hampshire 1,124 1.8
Francis Maude North Warwickshire 1,585 2.8
Oliver Letwin West Dorset 688 1.3
Grant Shapps Welwyn Hatfield 1,758 2.4

More arguments to counter myths about austerity

This post follows on from part 1 here. Here’s three more commonly heard arguments made to justify austerity or policies associated with it.

1) Gordon Brown spent all the money and now there’s none left. Just ask Liam Byrne

This line of argument conjures up a couple of misleading images. The first is that somehow there was a bank vault somewhere full of money which Gordon Brown kept dipping his fingers into and spent without putting any aside for a rainy day. He didn’t “fix the roof while the sun was shining” as right wing buffoons are fond of saying.

This is quite easy to counter. The next time someone says we’ve run out of money, just ask them how that is possible when the government can print money? They’ll probably look at you like you’re mad, and then say something about hyperinflation, but they will have to concede that we can’t actually run out of money.

This moves the conversation onto inflation. Won’t printing money cause inflation? Printing money cannot and does not cause inflation. If the government printed £100bn and just left it in an account at the BoE, how could that be inflationary? It’s the spending of money that can generate inflation, but government money creation is no more inflationary that private money creation by the banks. The inflation comes from too much money chasing too few goods i.e. the constraints are real – the ability to produce goods and services – not financial. Money can and should be created up to the point where the economy is at full employment. If the private sector does not create sufficient money to get us there, the government should make up the shortfall.

The other part of point 1 above I object to is the oft repeated line about Liam Byrne’s famous “no money left” note. If anyone drops this into the conversation, it’s your turn to look at them like their crazy and say i) the note was a joke; and ii) Liam Byrne is a joke.

2) Cutting x will save £y

This is a very common argument we hear, often in relation to welfare cuts e.g. uprating benefits by 1% will save £3bn and this will reduce the deficit by £3bn. That is the gross saving only though. The government may pay out £3bn less to benefit claimants, but this in turn means they have £3bn less income and £3bn less to spend on goods and services in the private economy. Those business then have less sales which means they pay less tax. Because of lower sales, they may need to let staff go. Those staff in turn then may claim benefits, so it’s easy to see that cutting payments to benefit claimants may actually end up increasing the deficit rather than decreasing it.

This is why you hear a lot of right-wingers say that there have been no cuts. They see the deficit rising and think its because the government is not cutting enough, when in fact it’s the cuts themselves that are increasing the deficit, and outcome predicted by many Keynesians.

3) What would you cut?

This is a common response by those in favour of austerity to those arguing against the cuts. There are a couple of unspoken assumptions behind this statement: i) deficit reduction must be a specifically targeted policy and is an end in itself; ii) the only way to achieve this goal is to cut spending and/or increase taxes.

The first assumption is false because it misunderstands what a deficit is and what it tells you. I explained this a bit in part 1. What the government should actually target is unemployment, poverty, living standards etc i.e. things that actually impact upon people’s lives.

The second assumption is also wrong. In fact the opposite is true. I would argue that cutting spending and raising taxes will increase. not decrease the deficit, and any attempt to cut the deficit through austerity will ultimately fail.

With these two things in mind, the question “so what would you cut” should be rejected out of hand. The question we should be asking is how best to reach full employment, how to reduce poverty, increase living standards. Only when we start asking these questions will we start to find solutions which actually bring about economic recovery and reduce the deficit to boot.