… THE GOVERNMENT DOESN’T NEED TO TAX OR BORROW TO PAY FOR THE NHS, OR FOR ANYTHING ELSE, EVER!
(sorry for shouting but some people really haven’t been paying attention and this is very, very important).
Once again, this is how it works.
When the government spends, it spends new money.
This new money is created out of thin air by the Bank of England.
There is no limit to the amount that the Bank of England can create, so there’s no absolute limit to the amount that government can spend.*
This means that:
- Taxes do not fund government spending.
- Borrowing does not fund government spending.
- The government can never run out of money.
There is a practical limit to the amount of money that the government can spend.
If the government spends too much money into the economy there is a danger that it will cause undesirable inflation.**
To prevent undesirable inflation the government has to be able to remove money from the economy.
Taxation is a way of permanently removing money from the economy.
Borrowing is a way of temporarily removing money from the economy.
There are other ways of removing money from the economy that the government could use.***
This means that:
- What gets taxed, and by how much, are political choices.
- The size of the deficit is irrelevant.
- The national debt will never be a burden on the next generation (or anyone else).
There now. Nice and clear.
So the next time you hear a politician or a journalist or a know-it-all doomsayer in the pub saying that “we can’t afford it”, you can tell them that they’re talking nonsense.
The only thing that we can’t afford is the continued idiocy of austerity.
* Because sterling is a sovereign currency (Modern Monetary Theory).
** The danger of inflation is typically overstated (The Armchair Inflation Fallacy)
***For example, negative interest