The words used in economics and politics—’debt,’ ‘affordability,’ ‘scarcity,’ ‘fiscal responsibility’—are not neutral descriptors of reality. They are tools of power. They are deployed to manage your expectations, to limit your imagination, and to make you accept a smaller, meaner world than the one we could actually build.
We are going to see this played out in today’s budget and the biggest falsehood of all is that the ‘government has no money beyond what tax or borrowing can afford’. Why? Because the government is the monopoly issuer of its own sovereign currency, the British Pound. It taxes in pounds sterling, borrows in pounds sterling and spends in pounds sterling. Please pause for a moment and think this through.
Here is what Vincent Gomez, an ex bond trader has to say:
I spent twenty years as a junk bond trader in the City, seeing at first hand how financial markets really work. I left to campaign for change and to explain how our monetary system works, because most of what we’re told about public money doesn’t survive contact with the evidence.
In a series of three videos, he explains in very simple terms why deficit spending by a government with its own currency is not the key issue. The key issue is real resources – people, skills, buildings, and materials. He gives two contrasting scenarios:
Town X, a small seaside town on the Cornish coast
Scenario A; Town X, has Slack (Room to Grow): If Town X has empty shopfronts on the high street, underemployed workers, or under-resourced local schools, additional state spending puts those idle resources to work. Extra spending fills empty chairs, creates jobs, and improves local services without driving up prices.
Scenario B: Town X at Full Capacity (Inflation): If every chair in the salons of Town X is occupied, every commercial shop is full, and every worker in the area already has a job, additional state spending cannot create new real output. Instead, businesses must bid against each other for scarce workers, driving up wages and prices across the board. This general price increase is inflation. In this situation, higher taxation is required to drain excess purchasing power and free up capacity.
Really, it’s that simple. Don’t be blinded by the bullshit spouted by TV policy pundits and politicians who will distract you with fear-laden phrases such as ‘debt overhang’, the threat of ‘UK debt default’ or the claim that the ‘UK’s credit card is maxed out’.
‘Deficit spending’, spending beyond what tax revenue brings in, is the norm. The UK government is a currency issuer, it spends money into existence and only later taxes some of it back, the reverse of what we are told. We – ordinary people and businesses are ‘currency users’, clearly we cannot spend more that what we have in our bank account. Governments with their own currency do not operate like household budgets.
So next time someone claims the state “cannot afford” to fund public services, housing, or infrastructure in Cornwall, Gomez’s Sovereign Money framework suggests asking the real question: Do we have the people, skills, materials, and spare capacity in Town X to do the work? All money does is mobilise the resources to do the work. Cutting spending in the name of ‘budget prudence’ does the opposite.
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