Copy and pasted from a contributor on the Journal.ie Coddler O Toole The macro economy of the nation is utterly different to the household budget. The lack of money to maintain living standards, employment and proper public services is not an unfortunate economic reality. It is rather a deliberate political and ideological choice. That choice is made at national government and EU level who primarily serve the interests of the capitalist elite and their neo liberal ideology at the expense of the vast majority. Modern fiat currency money is not a finite resource. It is created at will on the computer keyboards of the institutions public (central banks) and private (commercial banks) that are authorized to do so. Sovereign currency issuing states do not need to tax in order to spend in their own currency. The act of government spending is what actually creates the money which is then later removed from the economy via taxation. Neither do those nations need to borrow their own currency from anywhere is order to finance public services such as health and education systems, social housing or an efficient, well maintained water supply network. Such a state could for example implement a large scale social housing construction program to address the homeless crisis which Ireland currently faces. This would involve the government simply crediting the bank accounts of the builders, material providers, etc as necessary to have the homes built with the added benefit of creating desperately needed jobs in the construction sector. This contrary to neo liberal myth is how sovereign governments (e.g. U.K) actually spend in their own currency. They face no financial constraints whatsoever in that currency. The macro economy of nations and the globe is fundamentally different to the micro economics of business and households (private sector) who are users of the currency but not the issuer. A sovereign currency issuing government can afford to buy whatever resources are available for purchase in its own currency, (including the labour of the unemployed) as they can never run out of keystrokes and so a budget deficit should not be considered a problem once this understood. This is why most countries can run a budget deficit most of the time and it makes perfect macro-economic sense to do so. It’s really only the Eurozone countries that are required to borrow their own currency in the market at an interest rate determined by the market. Fiat currency issuing nations like the U.S and U.K do not need to obtain dollars and sterling from the bond markets to finance a budget deficit or indeed to cover odious private banking debt in the domestic currency. When they do choose to issue government bonds the primary objective is to implement monetary policy (e.g. drive their chosen base interest rate to target) not as a necessity to raise revenue. In addition, when those countries do ‘borrow’ in the market, they effectively decide what the yield/interest will be unlike the Eurozone nations subject to the tender mercy of the speculators. Another major benefit of the currency union for the capitalist elite is that that they can force cutbacks to government spending on health, education, housing, energy, transport, water etc etc as seen under the 6 year austerity program. The citizens are then pushed in to the hands of the ‘free market’ in order to obtain these basic services where they can be exploited for maximum profit. The ultimate aim is to privatize these services where the corporate sector can then gorge themselves on the resources and utilities that were once provided for the social good. This is a global trend under neo liberal jack boot economics with Irish Water being the latest manifestation here. Creating full employment should be the primary economic policy objective of any nation (or european “community”) that is interested in the wellbeing of the majority of it’s citizens. This maximizes the production of real wealth (goods & services) to be shared by us all and so drives up living standards for everyone. When private sector demand falls during a recession, jobs are inevitably shed leading to a further fall in demand, deepening unemployment and declining levels of productive output. The only agent that can act as a counterweight to this process is the government/central bank. They are the issuers of the currency in most nations and so can ramp up stimulus spending in the domestic economy which manifests as money in peoples’ pockets, increasing aggregate demand and so triggering the private sector to hire people to meet the demand and so reverse the decline. When aggregate demand is either too little (unemployment high), or too much (inflation rising), it is only the government/state sector that can act counter cyclically to make the appropriate adjustment. The government can remove money from the economy via taxation in order to combat inflation or pump stimulus spending into the system to counteract unemployment. Therefore the budget deficit should always be allowed to float to whatever level is required to maintain full employment. As the economy approaches maximum productive capacity with full employment, the state can then remove money from the system via taxation to counteract inflationary pressures. (Note: the state may face real resource limitations e.g. energy but not a financial constraint as it can never be insolvent in its own currency as it issues that currency) However it suits the interests of capital to have a large reserve army of unemployed to drive down then the wages and working conditions of those in employment which maximizes the returns to capital and minimizes the returns to labour (the vast majority of us). This is borne out is the data which show an ever widening gap between the obscenely wealthy elite and the rest whereby the 85 richest people in the world now hold the same wealth as the poorest 3,500,000,000. The macro economy has parallels to a closed loop control system like a central heating boiler (labour & resources) and thermostat (money). The enforced austerity program is akin to turning down the thermostat because the house is too cold. It’s terrible idea peddled by the neo liberal capitalist elite which leaves massive labour and other resources lying idle. They do this because that elite increase their relative wealth and power in both the boom and bust phases of the inherently unstable capitalist economic cycle. This is starkly demonstrated in the current recession where the world’s billionaires have doubled in number since 2008. Therefore the capitalist class and their political enablers continually promote policy and measures to inflate the booms and deepen the busts at the expense of the many. The vast majority of us are far better served by a stable system with modest economic growth ultimately limited by environmental, resource, population factors etc.
Posted on: Sun, 23 Nov 2014 22:27:10 +0000
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