Why we shouldn’t be worried about the deficit

2015 General Election crowdfunder blog, day one...

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By DAVID BROWN

Piggy skank . . . not only is monetary system broken, but current government hoodwink us for their own gain

The government keeps telling us we must ‘reduce the deficit’. So do the other parties – the only argument between them is about how to do it and how quickly: should we increase taxes or cut spending, or both?

The problem, they say, is that the amount we pay in tax is less than the amount we spend. We have to keep borrowing to make up the difference (the deficit), and the result of all this borrowing is an ever-increasing National Debt, which will have to be repaid one day. It would be unfair to leave this to be repaid by our children and grandchildren, so we’d better start now.

That’s what they tell us. Would you be surprised to hear that it’s all nonsense?

A lot of economists now argue that the deficit reduction agenda is based on a complete misunderstanding of the way money works. Everything changed in 1971, when we left the gold standard, but governments haven’t yet – forty-three years later – caught up!

Such ideas have been labelled ‘Modern Monetary Theory,’ which makes it sound very difficult, but it isn’t.

Here's an analogical tale...

Once upon a time on a large island there was a small country. They had no gold or other precious metals and consequently no money and no shops or factories. This wasn’t a big problem because the climate was good and food grew on trees, so no one was cold or hungry. Their favourite pastime was cricket. Otherwise they did very little exercise. Their second favourite pastime was eating.
One day someone in the government noticed that the people who played cricket seemed to be much fitter than those who didn’t. And those who didn’t play cricket were much fatter than those who did!
The government took the country’s health very seriously and decided to encourage people to play cricket. They passed a law to say that everyone must score at least a hundred runs each month. To keep track they started to issue paper certificates called ‘notes’ for every ten runs anyone scored. At the end of each month everyone would have to hand in ten of these notes at a government office.

Money's 'run out' . . . government deception over cash creation is just not cricket 

Of course, what happened was that some people, who liked playing cricket, scored a lot more than a hundred runs a month, and others, who didn’t, scored nothing at all. Those that had notes to spare would give them away to people who wanted them, in return for small favours like baby-sitting. But as time went by things developed. Cricket teams were set up simply to earn notes that could be exchanged for goods and services, and eventually a whole commercial sector grew up, with factories, shops, and Buy One Get One Free offers.
All this activity demanded improvements in infrastructure – better roads and communications, hospitals, policing, etc, but no one wanted to pay for it. So the government simply produced a lot more notes and instead of giving them out to people for playing cricket, gave them to architects, builders, hospital consultants, police officers, and anyone who agreed to be involved in creating and maintaining the infrastructure. And eventually they stopped paying people to play cricket.

The end.

Now suppose someone from, say, the UK or the US were to visit this fictitious country. They would see a thriving commercial sector and a lot of public spending. But they wouldn’t find anyone worrying about the deficit or the National Debt. The concept just wouldn’t exist.
They would probably end up scratching their heads and asking whether there was even any point in the hundred runs (ten notes) a month taxation.

Good question!

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On the topic of money, our 2015 General Election crowdfunding campaign - in which we are seeking to raise £500 to cover the costs of one candidate deposit - can be found HERE