There is a myth that the government simply does not have the money to address the climate and nature emergency. It is constrained (so the argument goes) by the need to plug ‘fiscal black holes’ and demonstrate ‘fiscal responsibility’ otherwise the ‘markets’ (that’s the financial markets) will be displeased. To placate the markets is of prime importance. Climate and ecosystem collapse come a long second.
Imagine adopting such a policy stance during the second world war? How far would we have got? The comparison is apt given the existential crisis we face.
Today the practice of government has diminished to a book-keeping exercise, devoid of vision and direction. The obsession with cost outweighs every concern and shapes every policy. Policy discussion circulates endlessly around government debt, deficits and fiscal rules. Some of the discussion is highly technical but translated into layman ‘s terms it boils down the spurious claim that ‘government budgets operate like household budgets and we have to balance the books’
Yet this is not true. Government budgets are nothing like household budgets for one simple over-riding reason: the government is the monopoly issuer of its own currency. It can never run out of that currency. The claim that the government spending is dependent on tax revenue or borrowing is back to front. To borrow or tax in pounds sterling, the money first has to exist in the real economy. How did it get there? It got there because the government first spends money into existence before it taxes back. You can’t tax what is not there. You can’t borrow what is not there.
This is a truth hidden in plain sight but is constantly buried under a rhetoric of fear of government debt defaults or a debt overhang that our children will pay for.
If we can hold onto this fact – that the government is the monopoly issuer of its own currency – regardless of what policy pundits and politicians tell you – then we can start asking awkward questions of our elected representatives when they claim ‘the government has no money’.
The urgency of confronting the myth of scarcity by informing ourselves with a correct understanding of money is laid out in a recent article in Scotonomics. The article refers to the recent government report on biodiversity loss and ecosystem collapse and the money required to address this challenge:
The [government] report identifies a funding gap and calls for the “mobilising finance to close $700bn”.This figure (in euros) could be typed into existence by the European Central Bank today. It would be around 3% of Europe’s GDP (22 trillion euros) and roughly only double what EU states spend on defence each year.
If money were the solution (which, of course, it is not), it could be found today.
Not being able to “find the money” is an excuse for inaction. Suggesting that it must come from the private sector is a way to ensure that wealth remains where it is now. With the top 0.1% of the population.
Governments create new money every time they spend. And if $700 billion (or equivalent) were needed, it could be created today. No one needs to pay any more tax; no billionaires have to be persuaded to come on board to fund this “finance gap”.
Note the words “typed into existence”; that is how bank-created money works, it is literally keyboard strokes into a computer screen.
What applies to the European Central Bank also applies to ourselves. We have the Bank of England and together with the elected government is the formal owner and supplier of Pounds Sterling which it can create in unlimited amounts.
This is not to say that tax has no value. While taxes do not fund government spending, they have a role in managing inflation by removing money from the economy. They also create a demand for the currency – you have to pay your taxes in pounds sterling, not bitcoin or dollars. But perhaps most importantly of all, it is the chief means to address inequality and spread wealth.
The New Kows 
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