MIDWESTERN MARX
  • Home
  • Online Articles
    • Articles >
      • All
      • News
      • Politics
      • Theory
      • Book Reviews
      • Chinese Philosophy Dialogues
    • American Socialism Travels
    • Youth League
  • Dr. Riggins' Book Series
    • Eurocommunism and the State
    • Debunking Russiagate
    • The Weather Makers
    • Essays on Bertrand Russell and Marxism
    • The Truth Behind Polls
    • Piketty's Capital in the 21st Century
    • Lenin's Materialism & Empirio-Criticism
    • Mao's Life
    • Lenin's State and Rev
    • Lenin's LWC Series
    • Anti-Dühring Series
  • Store
    • Books
    • Merchandise
  • YouTube
  • Journal of American Socialist Studies (JASS)
  • Contact
    • Article Submissions
    • The Marks of Capital
  • Online Library
  • Staff

11/12/2022

A Deficit Spending Scam Destroyed UK’s Prime Minister—Who’s Next? By: Richard D. Wolff

0 Comments

Read Now
 
Picture
With its disguises as “high finance” for the mystified and “Keynesian fiscal policy” for those “in the know,” deficit spending by the government was quite a successful scam for a long while. When the UK’s ex-prime minister opened her new government in September, Liz Truss followed tradition by trying to run the oft-used scam again. But this time it did not work. Eventually, even successful scams stop working. Its failure became hers but also her party’s, the Conservatives.’ Neither of them understood the scam’s limits. Perhaps its disguises had worked best on those who repeated them most in thought and word.

In its UK version, the deficit spending scam entailed the Conservative (but also some Labor) governments repeatedly cutting taxes on corporations and the rich. Serving their donors explains most of this. Without this scam, such behavior would have forced governments to act in traditional ways they now sought to avoid. One way would be to raise taxes on others to offset tax cuts for corporations and the rich. Governments only dared to do that partially, never enough to compensate for revenues lost from the tax cuts benefiting corporations and the rich. The other way would be to cut government spending. Governments did that also, especially when the Conservatives recast public services as unnecessary, wasteful, counterproductive, or in short, “socialistic.” But doing so angers the masses and risks losing votes for the government. Even when the masses could be distracted by campaigning against select foreigners (via Brexit against Europe and via Ukraine against Russia), public service cuts never compensated for what corporations and the rich were saving by having their taxes cut.

Enter the scam that claimed deficit spending “solved” the governments’ problems. Governments could 1) keep cutting their rich patrons’ taxes, 2) avoid offsetting tax increases on the middle and poor, and 3) avoid social service cuts. The scam was to spend without imposing taxes to raise the funds required to support spending (“deficit spending”). While deficit spending violated traditional rules for governments to balance their budgets, new and extreme economic threats (the dot-com crash, the Great Recession, the COVID-19 crash, and the sanctions war against Russia) justified trying to implement the scam. Alternatively, deficit spending could be justified as practical, a regrettable necessity of managing those recurrent business cycles.

Deficit spending came to be politicians’ magic sauce. It enabled them to boast about all they could spend on (for employers and employees) without raising taxes as if doing so flowed from the governmental efficiency of politicians. Governments could pander to corporations and the rich without it leading them to impose government austerity measures on the rest. The 1 percent gained a lot while the 99 percent gained a little.

The scam’s seamy side was massively “underreported.” It was and still is a fact that UK governments borrowed most of the money for deficit spending from the UK corporations and the rich. Once the government had cut taxes, the money saved by those corporations and the rich could be and was often lent to that government. The scam offered a certain “no-brainer” opportunity to corporations and the rich. Instead of making a one-time tax payment to the government (like other taxpayers do) corporations and the rich can instead lend that money to the government. The government security obtained in exchange provides repayment in full in the future plus annual interest payments till then.

This scam has worked for many years across global capitalism. After former UK Prime Minister Boris Johnson lied his way out of office, Liz Truss presumed she could and would run the scam again, loudly and proudly, with the usual political applause. All her predecessors had. But this turned out to be the time and the place where the scam would hit its limits. Ironically, the very beneficiaries of the tax cuts Truss proposed for the corporations and the rich were the “investors” who balked. They took a good look at the UK government’s financial conditions and decided not to lend it more money without much higher interest rates (and maybe not even then). Very quickly—as these things often go—higher interest rates drove down bond prices threatening UK pension plan assets. Suddenly, the unraveling of the UK economy could be glimpsed as could be its risks for global capitalism. Leading the blind, President Joe Biden said of Liz Truss that she had “made a ‘mistake.’”

The old scam’s Achilles’ heel: at some point, corporations and the rich might see too much risk in lending the government money they saved from their cut taxes. The very repetition of the scam over decades might accumulate levels of the UK’s national debt plus conditions in global capitalism that are rendered risky. Lending the UK still more money suddenly made little sense as an investment; other options were better.

It is true that the capitalist political economy positions the government in a structurally impossible dilemma. Both employer and employee classes want government services for themselves and likewise want to pay minimal taxes. The wealth and power concentrated with the employer class make them consistently more successful in tilting public finance their way. They get the services they want and likewise, shift the tax burden onto others. When conditions change and no longer enable the employer class to prevail that way in determining what the government does, big changes happen. In the 1930s Great Depression, John Maynard Keynes showed how deficit spending could fix broken capitalism without endangering capitalism itself. In the awful depths of that crash (capitalism’s worst to date), there was no time or space to worry that deficit spending’s “fix” was only partial and temporary or about limits to its effectiveness. That would excuse Keynes, but hardly the multitude of politicians, academics, and journalists who could have and should have seen—but never saw—the scam and the injustice involved.

Will the UK working class learn that prevailing economic theories and policies have always been partisan in the class sense of serving and favoring employers over employees? Most of what passes as “the economic policy we need now” is really pleading by a self-interested employer class. Raising interest rates to fight inflation is the big example these days. Among the forms and fields of class struggle, debunking economic policies’ claims of being class neutral is an ongoing battle.

Author

​Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV. His three recent books with Democracy at Work are The Sickness Is the System: When Capitalism Fails to Save Us From Pandemics or Itself, Understanding Marxism, and Understanding Socialism.


This article was produced by Economy for All, a project of the Independent Media Institute.

Archives

November 2022
October 2022
September 2022
August 2022
July 2022
June 2022
May 2022
April 2022
March 2022
February 2022
January 2022
December 2021
November 2021
October 2021
September 2021
August 2021
July 2021
June 2021
May 2021
April 2021
March 2021
February 2021
January 2021
December 2020
November 2020
October 2020
September 2020
August 2020
July 2020

Share

0 Comments



Leave a Reply.

Details

    RSS Feed

    Archives

    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020

    Categories

    All
    Aesthetics
    Afghanistan
    Althusser
    American Civil War
    American Socialism
    American Socialism Travels
    Anti Imperialism
    Anti-Imperialism
    Art
    August Willich
    Berlin Wall
    Bolivia
    Book Review
    Brazil
    Capitalism
    Censorship
    Chile
    China
    Chinese Philosophy Dialogue
    Christianity
    CIA
    Class
    Climate Change
    COINTELPRO
    Communism
    Confucius
    Cuba
    Debunking Russiagate
    Democracy
    Democrats
    DPRK
    Eco Socialism
    Ecuador
    Egypt
    Elections
    Engels
    Eurocommunism
    Feminism
    Frederick Douglass
    Germany
    Ghandi
    Global Capitalism
    Gramsci
    History
    Hunger
    Immigration
    Imperialism
    Incarceration
    Interview
    Joe Biden
    Labor
    Labour
    Lenin
    Liberalism
    Lincoln
    Linke
    Literature
    Lula Da Silva
    Malcolm X
    Mao
    Marx
    Marxism
    May Day
    Media
    Medicare For All
    Mencius
    Militarism
    MKULTRA
    Mozi
    National Affairs
    Nelson Mandela
    Neoliberalism
    New Left
    News
    Nina Turner
    Novel
    Palestine
    Pandemic
    Paris Commune
    Pentagon
    Peru Libre
    Phillip-bonosky
    Philosophy
    Political-economy
    Politics
    Pol Pot
    Proletarian
    Putin
    Race
    Religion
    Russia
    Settlercolonialism
    Slavery
    Slavoj-zizek
    Social-democracy
    Socialism
    South-africa
    Soviet-union
    Summer-2020-protests
    Syria
    Theory
    The-weather-makers
    Trump
    Venezuela
    War-on-drugs
    Whatistobedone...now...likenow-now
    Wilfrid-sellers
    Worker-cooperatives
    Xunzi

All ORIGINAL Midwestern Marx content is under Creative Commons
(CC BY-ND 4.0) which means you can republish our work only if it is attributed properly (link the original publication to the republication) and not modified. 
Proudly powered by Weebly
  • Home
  • Online Articles
    • Articles >
      • All
      • News
      • Politics
      • Theory
      • Book Reviews
      • Chinese Philosophy Dialogues
    • American Socialism Travels
    • Youth League
  • Dr. Riggins' Book Series
    • Eurocommunism and the State
    • Debunking Russiagate
    • The Weather Makers
    • Essays on Bertrand Russell and Marxism
    • The Truth Behind Polls
    • Piketty's Capital in the 21st Century
    • Lenin's Materialism & Empirio-Criticism
    • Mao's Life
    • Lenin's State and Rev
    • Lenin's LWC Series
    • Anti-Dühring Series
  • Store
    • Books
    • Merchandise
  • YouTube
  • Journal of American Socialist Studies (JASS)
  • Contact
    • Article Submissions
    • The Marks of Capital
  • Online Library
  • Staff