Last month Tony Blair created a political kerfuffle when he published his 5,700-word essay. He said the Labour Party is playing with fire over its future and the future of the country, and he’s right, but for the wrong reasons.
Blair is on record saying that when he was the Prime Minister he thought his job was to build on some of the things Margaret Thatcher had done, rather than reverse them.
What he isn’t saying, nor is the Labour Party, nor the corporate media, is that investment in the economy by the government would drive economic growth. Indeed, such investment is essential if the UK is ever to escape the malaise that nearly 50 years of neoliberalism has created.
We need a huge fiscal stimulus to bring our crumbling infrastructure up to the standard commensurate with the UK being the world’s fifth largest economy. That would generate significant economic growth and create more than a million well-paid jobs.
Public services also need a huge injection of resources, and the privateers must be ejected, because their overriding priority is private profit not public service. It is a national scandal that our public services have been turned into a cash cow for the private sector.
Similarly, all the utilities must be brought back into public ownership for the same reason. The most egregious example of the way in which the privatisation of our utilities has been abused is the water industry. But all the utilities are abusing their privatised status to rip off consumers and line the pockets of corporate fat cats.
Furthermore, social security benefits should be substantially increased. What the corporate media and neoliberals like Tony Blair won’t tell you is that this would also drive economic growth. That is because people on low incomes will spend any additional money they obtain in the local economy, whereas wealthy individuals tend to hoard it.
However, neoliberal ideologues like Tony Blair are committed to market solutions. But market solutions have created the mess in which we are in today. Indeed, it’s market solutions that has plunged more than 14 million British citizens into poverty. Moreover, market solutions have resulted in most of our manufacturing and heavy industries being offshored to other countries, where higher profits can be extracted. The millions of previously secure, well-paid jobs in those industries have been largely replaced by precarious, low-paid employment instead.
Blair’s obsession with market solutions and globalisation has left the country significantly more vulnerable to price shocks, as the events in Ukraine and the Middle East have proven. We should therefore be seeking to make the economy as selfsufficient as possible, which means repatriating some of those industries that we’ve lost and developing new ones. It also means government investment in areas like agriculture to make us much less reliant on imports.
Of course, if my prescription for improving the economic wellbeing of Britain was ever put to Tony Blair, he would no doubt respond by saying it is unaffordable. But that is because he accepts the household budget analogy of the economy. In other words, he would argue that governments have to manage their finances like a family.
That assertion is a complete fallacy, because the government issues the currency, so it can never run out of money. Consequently, it doesn’t need to tax or borrow before it can spend. In fact, taxes and so-called borrowing do not pay for government spending. What the government should be focused on is the availability of real resources in the economy like workers, raw materials, machinery and energy etc, not the availability of money.
But taxes are essential to control inflation, to deter spending on dangerous products like cigarettes, and to tackle economic inequality. Taxation also creates a value for the currency because our taxes must be paid in pound sterling.
It is also important to stress that the talk about government borrowing is actually a misnomer. Truth be told, governments don’t actually borrow as such. They sell government bonds, also known as gilts, on which interest is paid to provide a risk-free investment for the likes of super-rich individuals, insurance companies, banks and pension funds. These bond sales are really a form of corporate welfare.
There is no obligation on the government to sell bonds. They are required to do so as a result of a policy decision taken by Margaret Thatcher’s Tory government in 1981. The then Chancellor of the Exchequer, Geoffrey Howe, introduced the “Full Funding Rule.” This means that when the amount of tax collected by the government is lower than the amount it spends, it is required to make up the shortfall by selling an equivalent amount of government bonds. It’s yet another way of lining the pockets of the already wealthy.
The fact that Tony Blair’s administration never scrapped this rule is yet another damning indictment of his period in office. Needless to say, Sir Keir Starmer and Rachel Reeves have maintained this rule, and all the indications are that Andy Burnham would leave it in place, too. But prior to 1981, post-war governments regularly engaged in deficit spending, including the 1950s and 60s, when inflation was consistently low. Although those pre-1981 governments also sold bonds, one of the main reasons for doing so was to control the money supply. That is because bond sales reduce the amount of money circulating in the economy, and that helps to fight inflation.
As for playing with fire, if the Labour Party accepts Tony Blair’s advice, it will not only be accelerating its own demise; it will be pouring petrol on the inferno that 50 years of neoliberalism has created.
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