The myth of fiscal headroom
Money is never a constraint on government spending
Published in The Edinburgh Evening News February 21, 2024.
English Labour and Tory politicians say a lack of fiscal ‘headroom’ constrains them from spending what the economy, now officially in recession, needs and what people want. That’s ridiculous.
The only spending constraints that a government with its own central bank and currency has are physical resources – labour and capital. There’s plenty of underutilised labour and capital that could be deployed to create real wealth and enhance people’s health and wellbeing.
We’re in this dire mess because for decades the UK government has failed the people it’s meant to serve. It has slashed spending and sold public assets to corporations who prioritise their shareholders. It’s failed to invest in sustainable energy, infrastructure, transport, education and health, choosing to believe that the private sector will magically deliver what people need. It hasn’t and it won’t.
What the neoliberal ideologues who control the Tories and Labour don’t get is that if a government doesn’t spend the money it alone has the power to create and can therefore never run out of, then the economy will shrink, essential services will falter, and people will grow poorer and sicker, which is exactly what’s happening.
Keir Starmer is wrong to say we can’t have good public services unless we have a growing economy. We can’t have a growing economy without good public services.
Government spending tells the private sector where additional investment is needed and is why Labour’s decision to axe £28b for green investment is idiotic. Just 1% of GDP spent on public investment stimulates twice as much private investment, setting off a self-sustaining growth cycle.
So, money is NEVER a constraint. In 1942, Keynes said that “anything we can actually do, we can afford.” However, there is another constraint, apart from labour and capital, and that’s political will.
Scotland has the political will to invest in its economy and people but lacks the powers of a normal independent country. That’s why we must end this failing union.
Yes Leah, we need to keep trying to explain to ignorant Politicians a wee bit about how the economy works instead of the dribble they keep uttering.
Money is not wealth. money has no intrinsic value. In a market economy money can have "exchange" value. To make this simple for politicians, that means that money can be used to "exchange" valuable goods and services in the market, but it has no value itself.
What Keynes was saying was that if we have the means of production, that is labour and natural resources we can make wealth and just print the money to cover its exchange value.
If the present Labour potential Government do not understand this sinple concept they should look at how the Attlee Government dealt with public investment, economic growth, control of inflation, full employment, and more equality.
They should study that Government;s economic ploicy between 1945 and 1950 and they might,if they pay attention, become a lot less ignorant about economics and stop talking such rubbish.
'Scotland has the political will to invest in its economy and people '
Not sure about that, with the present incumbents in Holyrood. Devolutionists, the lot of them.