Don’t forget that Austerity is a political choice.

I know, but for some reason it is accepted with ease in this country. I suppose by people who advocate a "small state" and use expressionsxlike "bloated public services" or " the dead hand of the state".

It's accepted because most people believe in the 'taxation funds spending' lie.

Though how cutting funding to public services, which support a large number of private enterprises in the UK, helps to keep the domestic economy alive is beyond me.
the
Perhaps someone can explain....

The tories have monopolised all the sensible-sounding mantras - ‘we are a country that pays its way’, ‘we can’t spend money that we don’t have’ - and use them to justify doing irreparable harm. Labour aren’t yet doing a strong enough job of pointing this out.
The only example of compassionate conservatism we’ve seen so far is towards bankers’ bonuses.

Maisie, I don't want to argue with you, but it isn't a "lie". It is just one way of describing a very complex economy. Academically people are still arguing where what the MMT crowd have put forward fits with the current view of economics.

You get so cross about it. It must be better to talk to people in the language they understand - possibly with an additional way of putting it - then you pass on some of your knowledge. Either that or people, who don't like others telling them what to think, will shut out what you are saying. Getting angry will turn people away from your argument.

This graph may cheer you up. British Social Attitudes, NatCen Social Research The government is very out of step with the majority of the population.

The rich get richer and the poor get poorer seems to be how it was,is and will be. Everything is in the interests of the rich and they are the ones who are chosen as PMs and fill nearly all influential positions. Most countries seem to be like this and the UK particularly with its ‘class system’.

Which academics are arguing DaisyAnne?

MaizieD

It's accepted because most people believe in the 'taxation funds spending' lie.

Though how cutting funding to public services, which support a large number of private enterprises in the UK, helps to keep the domestic economy alive is beyond me.
the
Perhaps someone can explain....

I will admit that my level of economic understanding is “you dig stuff out of the ground and then rearrange for the benefit of people. Everything else, necessary or not, is just holding doors open for each other”. I do also understand, perhaps wrongly, that money is not real (at least at a national level) but is a way of measuring the value of an economy and elements of it. And I agree that any politician who does not understand this is wilfully avoiding responsibility.

But I would like a little more help MaizieD in fully understanding this. It’s perhaps inevitable that almost any ‘normal’ person cannot but avoid treating money as if it were real. So, for example, while I believe I understand what you say when you write ‘taxation does not fund (government) spending’ if increased taxation is a lever that causes government spending that causes spending then the effect is the same. But I realise as I write that the causality in this last sentence is somewhat weak.

Don’t take this as an invitation to write a thesis but I for one would be grateful for some pointers.

On a tangential point (and this isn’t an anti-capitalist rant but I do have some of those in my back pocket) but I found myself wondering today if all of this was not some of the early signs of the fragility of an economic system which is predicated on the assumption of eternal growth.

The way governments repay debt is through revenue.

Austerity takes demand out of the economy thus reducing government revenue.

Austerity between 2010 and 2019 reduced the economy by £100bn thus reducing government income, so it is clear that under its own terms austerity failed. (OBR figures).

Growstuff, I am not prepared to discuss this with those who treat others who do not "believe" as modern heretics. It is, as far as I am concerned, just another part of the arguments that go in and out of economic fashion.

Those who seem to see Murphy as the 'second coming' remind me of the poor Cathars at Carcasonne who walked into the fires believing they were "the pure" and everyone else had not yet received enlightenment. The sad thing is that Liz Truss, whose views are ideologically the opposite economically, seems equally prepared to walk into the fire for her beliefs.

All I want is Maizie to stop being so upset that she could not convert everyone and that therefore "everyone" was believing a lie. It cannot be good for her or the argument against the Liz Trusses of this world. I certainly am not prepared to fuel your attempt to put me on your cleansing fire.

Petera it would be interesting to hear more about your views on the death of or changes to, growth.

So in order to service their debt, the government should raise revenue by increasing tax.

Windfall tax

Non-dom status abolished.

Increase the higher tax rate to 50%

Are amongst some of the ways to increase revenue.

Measures to grow the economy are essential. Joining the SM and CU would raise our GDP by billions at a stroke.

Measures to grow the economy are essential.

I think that depends on what you mean by growth WWM

On September 22nd, the day before Kwarteng's mini budget, LibDem leader Ed Davey , interviewed by Kay Burley, foretold the disastrous results and explained how the Liberal Democrats would help the economy.

www.youtube.com/watch?v=t8V0GFBsl4A

Thank you varian. The Lib Dems don't get the publicity the other two do so you help keep me in touch with what they are saying.

Agree with Whitewave. Would add another easy measure: introduce one or two more bands of council tax, leaving 50% of additional revenue thus raised with the relevant authority and transferring the other 50% to another pot to help areas with fewer swathes of huge houses.

MaisieD I think your point about the link between taxes and spending does not apply to the council tax.

DaisyAnne* It's no skin off my nose what you choose to discuss. It's not a question of belief. It is a fact that the UK government creates the money which circulates in the economy. It's like discussing whether grass is green.

I can understand why Maizie feels she's bashing her head against a brick wall and becomes frustrated.

winterwhite

Agree with Whitewave. Would add another easy measure: introduce one or two more bands of council tax, leaving 50% of additional revenue thus raised with the relevant authority and transferring the other 50% to another pot to help areas with fewer swathes of huge houses.

MaisieD I think your point about the link between taxes and spending does not apply to the council tax.

You're correct about councils. Unlike a government, councils can't issue their own sovereign currency, so their situation is more like that of a household.

winterwhite

Agree with Whitewave. Would add another easy measure: introduce one or two more bands of council tax, leaving 50% of additional revenue thus raised with the relevant authority and transferring the other 50% to another pot to help areas with fewer swathes of huge houses.

MaisieD I think your point about the link between taxes and spending does not apply to the council tax.

So what sort of growth do you agree to whiterwhite? Economically, "growth" measures the increase in people's real income, i.e., the ratio between those incomes and what they can buy. The Truss camp keep/kept talking about growth, but I have no idea how their methods would have produced it for everyone.

"Economic growth" is also applied to education, training, and health. These areas are key to both business growth and growing incomes. They can also be essential to personal growth. Jobs that demand higher education and training generally pay higher salaries.

Health is your starter for 10 in the growth argument. Lack of health care can leave people unable to work. Poor health care is currently part of the reason why our unemployment looks so low. In our current economy, work determines how much you can grow economically. So, the lack of healthcare is a brake on the economy.

The best way to look at tax and spending is, "am I prepared to pay more taxes for ...? It can't always be about other people paying. Even if you pay 1p and they pay millions, you should each be contributing.

winterwhite

Agree with Whitewave. Would add another easy measure: introduce one or two more bands of council tax, leaving 50% of additional revenue thus raised with the relevant authority and transferring the other 50% to another pot to help areas with fewer swathes of huge houses.

MaisieD I think your point about the link between taxes and spending does not apply to the council tax.

Yes. What I think is that the government can get greater revenue by raising tax and if the measures for growth are successful the resultant tax revenue will further be used to pay the government debt.

Not sure of your question DaisyAnne since I wasn't talking about growth. I would certainly support unravelling Brexit.

Austerity and instant cuts are advocated by those uninterested in planning beyond the next two years. Long term solutions are what are needed, esp for instance for the health service, education and planning. I think that these 3 at least should somehow be freed from the vagaries of constant ministerial change and a greater role given to professional bodies and more importance attached to their advice.

growstuff

I can understand why Maizie feels she's bashing her head against a brick wall and becomes frustrated.

Thanks, growstuff

Petera says Don’t take this as an invitation to write a thesis, which I appreciate, but without the backing of academic analysis of the mechanisms of state funding I don't see how one can get at the truth of how the process works.
I use Murphy's blogs because he a good communicator and explains things clearly, but he is just clarifying the research of academic economists.

So here I am using an academic paper called The self-financing state: An institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom

The authors say This paper constitutes a first detailed institutional analysis of the UK Government’s expenditure, revenue collection and debt issuance processes. We find, first, that the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation from, or debt issuance to, the private sector.

It all centres on the Consolidated Fund, which was set up in in 1787 as ‘…one fund into which shall flow every stream of public revenue and from which shall come the supply (i.e the money) for every service’ (HM Treasury 2021).
This could be looked on as the Government’s account at the Bank of England

The authors explain it:
We find, first, that the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation from, or debt issuance to, the private sector. The spending process is initiated by the government drawing on a sovereign line of credit from the core legal and accounting structure known as the Consolidated Fund (CF). Under directions from the UK finance ministry, the Bank of England debits the CF’s account at the Bank and credits other accounts at the Bank held by government entities; a practice mandated in law. This creates new public deposits which are used to settle spending by government departments into the economy via the commercial banking sector. Parliament, rather than the Treasury or central bank, is the sole authority under which expenditures from the Consolidated Fund arise. Revenue collection, including taxation, involves the reverse process, crediting the CF’s account at the Bank.

The creation of new money in the CF is just a the same as the commercial banks' creation of new money when they make a loan to a customer (bank lending isn’t financed from deposits, it’s completely ‘new’ money)

As the CF also handles the revenue from taxation, and other sources, it can be seen as tax revenue paying off the government ‘overdraft. But it isn’t necessary for the tax revenue to be in the CF before the government can spend any money.

I don’t know how this can be made any clearer. The paper, though technical, is quite readable. It looks at different explanations of government funding and it details the authorities consulted in the course of the research.

But just reading the Abstract and the Conclusion is helpful to understanding

www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_purpose/files/the_self-financing_state_an_institutional_analysis_of_government_expenditure_revenue_collection_and_debt_issuance_operations_in_the_united_kingdom.pdf

Yes, if you think about government expenditure and subsequent debt, it is never raised from tax revenue. Look at the payment for war, or the pandemic or any other large expenditure.

The government raises it from bonds it issues with the promise to repay at a future date.

We finally finished paying for WW11 just before the end of the last century I think. Over the years inflation ensures that the debt becomes less of a burden, just the same as mortgage debt.

So all the nonsense about our children having to pay off these huge debts are just that - nonsense. Yes the debt stretches into the future, but that is exactly how governments work.

growstuff

DaisyAnne* It's no skin off my nose what you choose to discuss. It's not a question of belief. It is a fact that the UK government creates the money which circulates in the economy. It's like discussing whether grass is green.

But Maizie was not saying that the "UK government creates the money which circulates in the economy". Nor was anyone disagreeing with that. No one disagreed with her at all.

What was said was,"It's accepted because most people believe in the 'taxation funds spending' lie." Maizie isn't banging her head against a brick wall. She is throwing others against it because they don't conform to her belief and the mantra that "tax doesn't fund spending". That don't conform because they don't believe it to be true. No amount of calling them liars or believers in lies will make them do that.

People are entitled to their own opinions but not to their own facts. This is not an accepted fact - yet. It may become that. However, if Maizie keeps up the evangelism, then that is a belief and the way we are assaulted with other opinions being lies, puts it in the faith category.