Sodium Haze: Right targets - wrong message

Tuesday, 5 July 2011

Right targets - wrong message

The Haze has been perusing the website of the good people at False Economy - a well presented web site that seeks to mobilise opposition to the cuts in government spending.

While we can sympathise deeply with the aim of the website and certainly agree that cuts will not help the british economy - but the analyis offered by the site is flawed and their solution deeply flawed.

Progress through the site is elegantly simple.

The first section is called: 'Why the cut's won't help the economy'

Lets examine the text in detail:
Cutting spending is not the same as cutting the deficit. The government says that its deep, rapid cuts cannot be avoided. Ministers claim that they are the only way to deal with the deficit. Anyone who doubts this is a "deficit denier". We disagree – and so do many expert economists. We don't deny the deficit. It was an inevitable result of the worldwide recession. Of course it has to come down.
Well we agree that cutting spending is not the same as cutting the deficit and agree that the term 'deficit denier' is a handy smokescreen for those committed to patching up our broken banking system and lurching on - but then it all starts to unravel.

By saying 'we don't deny the deficit' it buys into the smokescreen thrown up by bankers to conceal the real reason for the national debt - which as we monetary refromers know stems from borrowing our money supply from private banks at interest.

Worse still by saying that the deficit is the 'inevitable result of the world wide recession' is a bit like saying that The Titanic sank due to a loss of floatability! Yes there was a recession - but without explaining what lies behind the recession (2008 bank crisis anyone?) then it rather looks as though they either don't know or haven't thought about it.
But that does not mean that the government's way is the only way. Its decision to close the deficit in just four years, and to do so by cutting £4 in spending for every extra £1 it will raise in tax is not the only option. There are alternatives.
Well this paragraph implies that cutting governement spending into the economy is a viable option for reducing our budgetary defcit and our overall debt. Neither is true, as economies around the world have proved - following the IMF austerity mantra simply wrecks the economy. That's why it isn't working right now in Greece, Portugal, Ireland, and Spain and why it never worked in the past in Africa, Asia - indeed countries like Argentina and Hungary had the good sense to reject the bullying of the IMF and austerity altogether.

They go on to contradict what they have implied in their next paragraph.
Ministers want us to think that the only choice is between cutting spending and increasing tax rates (such as VAT). But there is another factor that they ignore: the amount of tax they collect depends on how strong the economy is.

If the economy does well, then that automatically helps close the deficit. If companies become more successful and more people are in work then they pay more tax.

But deep cuts will slow down the economy, and therefore reduce the tax take. This makes the deficit harder, or even impossible, to close. A longer time scale would give economic growth the chance to do much of the hard work of deficit reduction, rather than relying on cuts and tax increases.

That's why we say the cuts are a false economy.
This is a standard Keynes economic argument and positions the campaign firmly in the economic mainstream. The campaign is obviously unaware of the pivotal role of the money supply in creating our problems.
Our economic problems run deep, and experts argue about them in ways that most people do not understand.
Well the vast majority of economic 'experts' don't understand the problems either - brainwashed by the handicap of a university education in economics or blinded by a mixture of a consensus trance and vested interest.
But the basic issues at stake are not that difficult – and we do have choices about what to do.

Do we try and get rid of the deficit in four years, or let the extra tax that flows from economic growth do more work?

Do we want to see four pounds of cuts for every one pound of tax increase?

In a democracy we should all have a say – especially when neither governing party put such massive cuts to voters at the election.
While we agree that certainly the Lib Dems are guilty of breaking election pledges - but both the Conservatives and Labour were commited to budgetary cuts during the election, the only difference being the scale of the cuts - and there wasn't that much difference.
The aim of False Economy is not to put forward a detailed alternative, but to challenge the myth that there are no alternatives.

These deep and rapid cuts are not only damaging and unfair, but unnecessary.

But we do think that there are policy choices that can help.
  • We want policies that will get the unemployed into work (and we don't mean cutting their benefits).
  • We support a Robin Hood tax on financial transactions, and a crack-down on tax avoidance and evasion.
  • We want to see support for investment in a low-carbon future that can help bring down unemployment and stimulate growth.
That's our approach in a nutshell. But if you'd like more detail, read on.
To take those points in turn -

(a) Its hard to get the 'unemployed into work' if the money to grow the economy does not exist.

(b) A Robin Hood tax on financial transactions puts the cart before the horse - why tax an industry that loans the nation its own money supply? Why not return the licence to print money to a duly elected government and simply keep the £30 billion annual subsidy that we currently hand over meekly to the banks?

(c) Yes well investment in worthy projects would be lovely - but since banks tend only to lend to people who promise a quick and handsome return and as private companies they are under no obligation to lend unless they want to...

The website then provides a page detailing why the cuts are unfair - rather ignoring the basic unfairness implicit in cuts required to keep a broken and unfair system of money going for a few more years (maybe)...

The next section is called 'What the experts say' and has contributions from various economic luminaries who back up the standard keynesian economic mantra laid out earlier.

We are then invited to 'explore the alternatives'
We do not set out a detailed policy mix, we simply want people to realise that there are alternatives so that they can work together to get the government to change its policies. But the alternatives do have some things in common.

They start by saying that we should not try to get rid of the whole deficit in four years. A longer timetable allows economic growth to do more of the work of deficit reduction
Oh dear. By declining to offer a 'detailed policy mix' they run the risk of scorn from people (like the government and its supporters) who are obliged to provide policy in detail (however daft the policies may be)

Arguing for a later timetable is simply another way of saying that we shall pay off our debts over a longer period - but we won't and can't pay off our debts as any monetary reformer knows - since the only money that we could use to pay off our debt is also borrowed from private banks - we cannot pay off our debt with debt money - no more than a drunk man can booze himself sober. The problem is the nature of money - how it is created, who creates it and how it gets into the economy (as debt) - until we change this then notions of 'paying off' the national debt are naive nonsense.
However we cannot pretend that the recession never happened. The banking crash showed that some of what was thought to be real economic growth was an illusion
This is as close as this website comes to the truth of the underlying situation - as this report fom brokers Tullet Prebon (and our analysis) explains a lot of the so called 'growth' created under the last government was simply a bubble built on debt money issued by banks - who preferred blowing up the great UK house price bubble and consumer credit - while starving UK industry of funds.

With tragic irony they then say:
As we have explained, part of the deficit is structural and won't disappear even when the economy is growing strongly again.
Their notion of a structural deficit is explained elsewhere on the site which basically re-states the Keynsian mantra of counter-cyclical investment to clear the 'structural deficit' while alluding mysteriously to :
But there is a second part of the deficit. The crash was caused when a finance bubble turned out to be an illusion. We thought it was real prosperity, but it was a mirage. This means that even when we get the economy working again, it won't be as productive as we once thought it to be.

This second part of the deficit is much smaller than the first, but it will hang around even when we get proper growth and the economy working efficiently again. This is why it is called the structural deficit. Dealing with this part does require difficult decisions that involve tax and spending. But no-one can know what the size of this structural deficit will be until we have got the economy working properly again.
I think the site is trying to offer some kind of Janet & John version of economics - but by doing so the whole excercise comes across as rather wooly and incomplete.

anyway - lets examine some of their proposals:
Policies that stimulate growth include:
  • A new green investment bank that can help move the economy away from over-reliance on finance to generating growth and jobs in a low-carbon economy.
  • Direct policies to create jobs, such as the Future Jobs Fund – which was one of the first things this government cut.
  • Policies that get banks lending again to small and medium-sized businesses.
  • A state investment bank based on the nationalised RBS and Lloyds banks.
So a new bank - a new fund - entreaties to get the banks to lending and erm a new bank. So in other words we need a better money supply that somehow keeps the existing broken one unexamined and unchanged. Oh dear.

Sadly the 'False Economy' website is a dreadful muddle - well intentioned and presented but perhaps we might even say that its an unhelpful campaign.

The rationale behind the cuts in the UK is a muddled and deluded attempt to patch a failed and broken system of money- but the opposition to the cuts is often equally muddled - presenting a keynsian utopia as a pancea for our debt crisis just allows the real problems to go unexamined.

I was surprised to find a link from the Positive Money Facebook page to this group. While they look like fellow campaigners - they are in fact presenting very different arguments and the Monetary reform movement must be careful who it stands alongside - lest its message gets muddled in the public mind with wooly left leaning tub thumping.

I am afraid to say that wooly left wing tub thumping is exactly what the 'false Economy' website is.

It takes more than a swish website to present a credible alternative to the current disastrous monetary systems that dominate our lives and False Economy is firmly in the mainstream.

If the urgent need for radical changes to our money supply is diverted into a pointless stand off between keynsians and monetarists or left vs right or the old tribal loyalties of Tory vs Labour - then the banks will escape scott free and all hope is lost.

The task of education for the Monetary Reform movement is immense and we are few in number - but we must convince campaigns and organisations like False Economy to look beyond the usual arguments and the usual suspects for the paths to social justice - even the banks aren't the real problem - our system of moeny supply is, and they must be made to understand that or all that (justified and healthy) anger and energy will be for nothing.

[This blog is now a mirror for the new and vastly improved Sodium Haze which lives here: - come and see the shiny new Haze!]
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