Larry Elliott’s column on the rightwing economic myths constraining Andy Burnham’s government should be required reading before John Healey’s budget (Rightwing economic myths could derail Burnham’s project – to destroy them, look to Keynes, 1 October).
I spent 20 years trading bonds, and agree that the household budget analogy bears no relation to how the UK state finances itself. Parliament votes on the spending, the Treasury instructs the Bank of England, and the Bank credits accounts in the private sector. Taxes withdraw money afterwards.
The same accounting exposes the “black hole”: every pound of government borrowing ends up as a financial asset held by households, firms and pension funds. That money hasn’t disappeared into any hole, black or otherwise.
The triple lock is debated as a question of whether Britain can afford its pensions, yet a government that issues sterling cannot run out of sterling to pay them. John Maynard Keynes and Clement Attlee understood this, and so did an unlikely ally. Asked in 2005 whether US pay-as-you-go pensions were secure, Alan Greenspan, then chair of the Federal Reserve, told Congress that there was “nothing to prevent the federal government from creating as much money as it wants and paying it to somebody”.
The same is true of sterling. The real question, he added, was whether the economy creates the real assets those pensions are used to buy. Deciding how to provide the care workers, homes and medicines is a political and moral question of the kind democracies exist to settle.
Elliott warns that Burnham risks becoming the prime minister who asked the right questions without finding the answers. Ending Treasury-Induced Decline, a report that I co-wrote, sets out the institutional reforms he needs. He could start by dropping the wrong question: “How will we pay for it?”
Vince Gomez
The 99% Organisation
Larry Elliott is right: Burnham’s government needs to challenge neoliberal ideas, “the nostrums of the past four decades”, like the one about the government being like a household, if it is to repair the damage done to our social services by the Tories. There are others which Elliott didn’t mention.
The Laffer curve cannot be accepted by a government when chronically underfunded public services are crumbling, and the richest 1% in the UK own 36.5% of all financial assets, with a value of £1.8tn. We must reject arguments against equalising capital gains and income tax and imposing wealth taxes – and of course increasing income tax when fiscal rules allow – which use this old and long-disproved Tory economic myth.
The same applies to the silly notion of trickle-down economics when tackling the excessive profits of banks and companies cashing in on the effects of war. That leads to the Bank of England’s inevitable blaming of wage increases for inflation, ignoring the relatively recent research in the US showing that that most price inflation comes from “companies seeking to maintain profit margins”.
Bernie Evans
Liverpool
Grateful thanks to Larry Elliott for demolishing the conditioned belief that we must not “max out the nation’s credit card”. Producing and spending is fundamentally important to the ultimate revival of the UK economy and the restoration of industrialisation. My late husband always insisted that we could afford what we needed to and I didn’t believe him. I do now.
Val Bynner
London
