My glossary entry on this subject is well worth noting. It explains how these two Bretton Woods agencies were captured by neoliberal economics to spread its evil around the world, and what it meant.

It would be good to think that the Consensus is dead. It is not. The FT carries this headline this morning:

The message is loud, and it is clear. It is that Burnham must follow the neoliberal rules, whatever the cost, in the way that the Consensus was always indifferent to the suffering it caused.

The trouble is, we will get fascism if Burnham does that. Neoliberalism is, and perhaps always was, the mechanism for delivering that. Hayek always claimed to have been traumatised by fascist rule, but he created the monster that might ensure its return.

Burnham has one chance in government. And he either breaks the neoliberal rules, or he fails. That is the choice he has to make.

He can be the instrument for perpetuating the politics that is increasingly alienating many people from what we call democracy, or he can help deliver something far better by tearing up the rule book the IMF demands he comply with.

I fear the worst.

Those hopes were dashed. As it turned out, I could not have any treatment at all because, although it seems clear that I still have a kidney stone, around 15 X-rays could not locate it. As a result, I now have a CT scan arranged so that the next stage can be decided upon, but that is not for a fortnight.

The reality, as the team I met with willingly explained, is that this might be both good and bad news. If I allow myself time to recover from the initial shock and pain of this stone, it may turn out that no further treatment is required, as it may have now reached a point where my body can naturally handle it, and is even doing so. Alternatively, I might need surgical intervention.

Either way, I am, for once, taking the advice to slow down for a few days. There will definitely be content over the weekend, much of it related to videos, but otherwise I might be quieter than usual and will not be spending time on new ideas. Instead, I will try that thing I am very poor at, which I understand is called relaxation.

In the meantime, thank you for all your messages of goodwill and support. I do appreciate them.

Yes. England did amazingly well. Top 4. Ahead in the semi-final. And now there appears to be a national crisis about our failure to win.

Why mention that? Because this is English exceptionalism writ large. That is the absurd belief, based on the legacy of empire and colonialism, that England is best in the world, with a right to win. How dare anyone deny us the right to do so?

Because that belief is unfounded, of course. But so much of the English narrative, and too much of our neoliberal politics, is based on this assumption, as is the arrogance of the English attitude to Scotland, Wales and Ireland.

That is why the World Cup matters, in political-economic terms. We should learn from it. We might overcome the fear that so obviously burdens the national football team if we did.

It might have been the first infographic to become the basis for a video. It will not be the last.

DEBATE AMMUNITION

Labour's Job Creation Contradiction

Funding the Future | July 2026

Topic

Why Labour cannot promise more jobs while allowing the Bank of England to deliberately destroy them through high interest rates and quantitative tightening.

The video that this Debate Ammunition supports is available here.

The Core Argument

Pat McFadden, the Work and Pensions Secretary in Keir Starmer’s dying government, says Labour wants to create jobs. But at the same time Bank of England, with the full cooperation of the Treasury, is pursuing policies designed to destroy them. You cannot do both at the same time.

High interest rates and quantitative tightening are not neutral technical tools. They are deliberate instruments for suppressing demand and for creating unemployment, and they are working. General unemployment has reached 5% in the UK, and youth unemployment 10%.

The solution is straightforward. Labour must end Bank of England independence, cut the base rate, stop quantitative tightening, and redirect ISA and pension savings into productive investment in the UK economy. That is how jobs could actually be created in the UK, but it would require a radical change in Labour economic policy to achieve that outcome.

Key Statistics

The Argument Structure

Step 1 — Labour's policy is internally contradictory:

Pat McFadden says Labour must promises jobs while the Bank of England, supported by the Treasury, is simultaneously using high interest rates and quantitative tightening to deliberately reduce demand and create unemployment. The government is pressing the accelerator and the Bank of England the brake at the same time. This does not produce movement; it produces an economy in a tailspin.

Step 2 — The inflation justification does not hold:

The Bank of England is holding rates high, it says, to beat inflation, but almost all UK inflation since 2020 has been imported from supply chain disruptions after COVID, the Ukraine war, and conflict in the Gulf. None of these were within the Bank of England's control. Raising interest rates to suppress domestic demand in response to external shocks has no logical basis and imposes enormous costs on workers and communities.

Step 3 — End Bank of England independence and cut the base rate:

The base rate is also set high to attract mobile capital into the City of London, enriching bankers at the expense of every other participant in the economy. Bringing the Bank back under Treasury control and cutting the rate would reduce government interest costs, reduce mortgage and rent costs, free household spending, and restore demand. More demand means more jobs.

Step 4 — Redirect savings into productive investment:

Around £70 billion flows into ISAs each year, and pension contributions attract over £70 billion in annual tax relief. Both are currently wasted on second-hand shares and City speculation. Requiring these flows to be invested in UK bonds funding transport, energy, housing, schools, hospitals and green infrastructure would release over £100 billion a year for job creation without increasing government borrowing, because real assets would back every pound spent.

Their Argument → Your Rebuttal

The One-Liners

“You cannot promise people jobs with one hand while the Bank of England destroys them with the other.”

“Five per cent unemployment and ten per cent youth unemployment are not market outcomes; they are policy choices.”

“High interest rates do not fix imported inflation. They just make ordinary people pay for problems they did not cause.”

“Over eighty billion pounds of public savings a year currently subsidises City speculation. It could be funding jobs instead.”

“The Treasury view was wrong in the 1930s. It is still wrong now.”

Questions to Ask

If Bank of England independence is working, why are unemployment and youth unemployment both rising while wages stagnate?

Which specific domestic demand pressures was the Bank targeting with its high interest rate and quantitative tightening plan, given that all post-2020 inflation was imported from overseas?

How does the government plan to place people from health and disability benefits into jobs that Bank of England policy is simultaneously eliminating?

What is the public benefit of £80 billion a year in tax relief on ISA and pension savings that fund second-hand shares rather than new productive investment?

Further Reading

In this video, I examine the contradiction at the heart of Labour’s employment policy. The Bank of England is maintaining high interest rates and pursuing quantitative tightening, restricting investment and reducing the number of jobs available. At the same time, ministers are placing greater pressure on health and disability benefit claimants to find work.

You cannot destroy jobs and demand that more people work at the same time.

I explain why the government should reconsider the Bank of England's independence, reduce interest rates, and end quantitative tightening. I also outline how reforms to ISA and pension tax relief could direct more than £100 billion a year towards productive investment in Britain.

That investment could support better transport, renewable energy, hospitals, schools, flood defences, housing and the national grid while creating worthwhile employment throughout the country.

It could also support people facing barriers to employment who need training, transport, appropriate workplace support, and help with special educational needs. Slogans and benefit sanctions cannot substitute for a credible full-employment policy.

Can Labour resolve this contradiction, or is a fundamental change of economic policy now required?

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

In the dying days of Keir Starmer's government, I'm still so bored that it talks in slogans.

Pat McFadden, the Work and Pensions Secretary, has said the government must stop simply paying benefits to people. He says the government should provide more jobs instead, and that sounds reasonable at first hearing.

I guess it's his bid for his job under Andy Burnham, but this Labour government's policies are preventing the supply of the jobs that he says it should deliver, and he doesn't understand that. That is the problem that we are facing with the current Labour government, and I'm hoping that that will be resolved in the next one, in which case Pat McFadden shouldn't have a part in it.

Labour's position on job creation is internally contradictory. That's the point I'm going to make in this video.

Jobs cannot appear on the basis of political rhetoric alone. Government policy must create the conditions for full employment, and Labour is supporting policies that are directly designed to destroy jobs. That contradiction cannot be ignored, so let me explain it.

McFadden, in his comments, is attacking health and disability claimants. He's saying that he knows that some of these people cannot work, which is very nice of him, when we know, as a matter of fact, it is incredibly difficult to get most of these benefits.

The evidence required to support the claim is very high. And as a matter of fact, therefore, the vast majority of people who get these benefits are genuine.

But he implies that many of the people on these benefits could work instead, without any evidence to support his claim, at all. And so what he's doing is unfairly stigmatising claimants with the suggestion - a George Osborne-style suggestion - that they are shirkers and skivers.

But the fact is, he cannot promise them the jobs that he says they would want and which he says the government should deliver because the Bank of England is, with the full cooperation and assistance of the Treasury, ensuring that there is deliberate unemployment in the UK.

That is the consequence of its interest rate policy. Its interest rate policy is to create high interest rates in this country to deliberately reduce demand within our economy.

And at the same time, it is undertaking something called quantitative tightening, which reverses the previous quantitative easing process, done through 2008 after the global financial crisis, and in 2020 during the COVID crisis, by withdrawing the money that the banks were provided with then, which means there is less liquidity in our economy at present, and less capacity to create investment, and therefore fewer jobs.

These measures, in combination - high interest rates and quantitative tightening - are guaranteeing that Labour is letting the Bank of England destroy large numbers of jobs in the UK, and now Pat McFadden is saying the government should be creating jobs.

You can't destroy jobs and say you want to create jobs at the same time, Pat McFadden. That makes no sense. You have to have a joined-up policy. It was something that Tony Blair used to talk about, but Labour has never really understood.

What is more, the Bank of England's policy fails at every level. It assumes that high interest rates will beat inflation in this country, but almost all the inflation we've had in the UK since 2020 has been imported from overseas.

It was imported after the COVID crisis because there were supply chain problems outside the UK.

It was imported because of the problems that arose as a consequence of war breaking out in Ukraine.

And it's been imported as a consequence of war breaking out in the Gulf.

None of those things are measures over which the Bank of England had any control whatsoever.

But nonetheless, they're raising interest rates to supposedly suppress excess demand in the UK economy, when there is no excess demand in the UK economy, and all they are creating as a consequence are deliberately high levels of unemployment, and we know that.

The unemployment level has now reached 5% generally and 10% amongst young people.

Workers are paying the price for this mistaken policy, and it has to be changed.

And it could be, but it seems that Pat McFadden hasn't got the brain power to connect these issues together and therefore demand that Labour end its policy conflict.

That is the problem that we are facing. That is the problem that should be solved. And the resolution is easy to find.

First of all, Labour should end Bank of England independence now.

Why? Because that would mean we would not have this risk of a conflict between what the Treasury and the government wants and what the Bank of England wants.

At the moment, we're driving the economy with one foot hard on the accelerator. That's the Treasury, if Pat McFadden gets his way, to try to create new jobs. And one foot hard on the brake, that's the Bank of England.

And what we know happens as a result is something like doughnut turns or whatever Jeremy Clarkson used to call them. We just spin, going nowhere.

And monetary policy at the moment is not supporting the government's objectives. And that has to change. And the way it can be changed is to bring the Bank of England back under central government control.

And if that was done, the second measure should be to reduce the Bank of England base rate . It is too high. It is out of step with the rest of the world.

The only reason it is so high is to attract hot mobile cash into the City of London so bankers can make more money than they would otherwise do. And that is a cost to everyone else in our economy.

That base rate should be reduced. And if it was, every other interest rate in the UK economy would be reduced as well.

The government would spend less on interest. We would spend less on interest. We would spend more on buying things. There would be more jobs.

It is as straightforward as that, but the government doesn't understand that.

And there is a third measure that Labour should put in place if it restores control of the Bank of England within the Treasury.

It should end quantitative tightening now. It should simply come to an end. And in fact, quantitative easing should be considered again.

Why? Because financial markets need adequate liquidity. They've been denied it by the deliberate process of the government withdrawing the funding that it previously supplied.

It is the only central bank in the world to have tried this. We are suffering as a consequence. And providing a change of policy would encourage investment instead of restricting it, which is what is happening now.

And let's be honest: when we come to talk about encouraging investment, we could change our savings system.

I've talked about this before, but it's absolutely fundamental. If we are to have more jobs in the UK economy, we need more investment.

That can come from the government, or it can come from the private sector. The private sector is not delivering, and the government claims it can't borrow.

But my suggestion is that the government should provide changes to the rules on ISAs in pensions so that all ISA savings are in bonds that are used to fund investment in the UK.

There is no reason why this could not be done, and about £70 billion a year could be released into investment in the UK economy, as a consequence.

This would not increase UK government borrowing because there would be assets to back the investment. Therefore, it is in government borrowing terms, net neutral.

And part of every new pension contribution could also be used in the same way as a condition of getting the tax relief on the savings product.

This could increase the amount of money available to invest in the UK economy to over £100 billion a year.

And if the private sector doesn't know what to do with that money because all it wants to do is speculate, then the government should be spending this on all the things we know we need.

Better transport systems, a better national grid, better electricity generation, better hospitals, better schools, better roads, you name it, better flood defences, insulated houses, solar panels in every house in the UK, making every single house a power station.

All of that is possible. We could create the jobs we need by changing our savings system and turning it into a source of capital for job creation.

Labour could do this. It is possible, but there is a constraint. We do need to have the people available to work.

And in this sense, Pat McFadden's right and wrong. There are people who might be able to work, but there are barriers to them working, and that is a big issue we need to overcome.

Simple things like making driving lessons and tests available so people can get to work are really important.

Providing essential skills is important. And in this context, many of the people who are now unemployed might have had special educational needs when at school.

Special educational needs do not end when you leave school. If you needed support to get through education, you might need support to get into work, but that isn't available.

We need to reimagine how vulnerable people need training and support to equip them for the demands of the workplace, for which they have not been prepared by education.

This is essential. If Pat McFadden wants more people to work, we've got to help them to work, not just tell them to work. Slogans don't work.

So at this point we have got a plan, but Labour has to do something else to make it work.

It has to abandon the Treasury view. The view that has prevailed inside the UK Treasury for a century now, that says the UK government is unable to change the level of economic activity because money is a scarce resource, and if the government uses it, it prevents the private sector using it.

So, a shift from private sector to public sector activity does, according to the Treasury, not boost the overall level of activity in the economy, and therefore it's a waste of time.

This was proven to be wrong by John Maynard Keynes in the 1930s. It's been wrong ever since, but it is what the government believes via the Treasury.

And the consequence is that, at the moment, they will not use their economic power to create jobs.

This is the big impediment to progress, and Pat McFadden isn't talking about changing that view. In fact, he subscribes to that view. I know he's told me in person that he does by implication of the language he used.

So, we do need to create jobs. We do need every government department to prepare plans to invest the sums that I could create by changing ISA and pension rules.

The government should be funding productive projects. It should be investing in creating employment opportunities. It should be changing the rules around the Bank of England.

This is how jobs could actually be delivered.

There is a real choice to be made. Labour can continue with today's failed policies, or it can create the conditions for full employment.

I've explained how it can be done. It is possible. It would be straightforward. It would not upset the world because they would know that we were doing this with a plan.

A plan for full employment. A plan for growth. A plan to improve the prosperity of the UK. A plan to provide the underpinning for the future prosperity of both the public and private sector in this country.

Nobody is going to react adversely to that.

And if anyone should lose their job because they are the problem that needs to be removed if we are to implement this plan, it is Keir Starmer, Rachel Reeves and Pat McFadden.

The three of them have done enormous harm to this economy.

It's time to move on. It's time for Labour to change its spots. It's time for Labour to deliver for people and not for finance.

That's what I think. What do you think? There's a poll down below.

Please let us have your comments. Please share this video and like it if that's what you do.

And if you'd like to make a contribution so that I can afford to buy Tom a coffee, that would be great.

Poll

I am hoping they blast it to smithereens today, but I know a third round may yet be needed.

This treatment is bound to heavily disrupt my day and, because I will also be on some quite heavy painkillers for a while, I might not be at my best.

With luck, tomorrow will be better. But life does these unpleasant things, and today I have simply got to deal with them.

Andy Burnham has signalled that he will not increase wealth taxes immediately after becoming prime minister, easing concerns among the business community but limiting his economic room for manoeuvre.

He said on Wednesday he did not want to “create new divisions” with his tax policy, in comments that allies said were a sign that he did not intend to raise money by taxing wealth.

They added that he had said in an interview with Gary Lineker:

“I do believe we need a greater sense of fairness and people feeling that things are being done in the right way and a fair way.”

“But at the same time, you know, I don’t want to sort of be perceived as somebody who’s coming in with grudges and agendas and, you know, going to just immediately find or demonise one group or create a new way of dividing people.”

Add this to reports that he will be appointing Shabana Mahmoud as Chancellor, and pressure from the OECD that he increase deeply regressive VAT instead of taxing wealth more and a picture of Burnham’s economic and tax philosophy is emerging. It looks remarkably like that if Rachel Reeves, albeit potentially even more so.

This is all deeply, depressingly neoliberal, but that is what I expected from Labour. Nothing is going to change. That party has chosen the pathway to political collapse and to play the role of incubator for fascism, and the hints are that this remains the case.

Increasing VAT would be the UK government’s best option to raise revenue fast if the public finances veered off course, the OECD said on Wednesday.

They added:

In a new report on the UK economy, the Paris-based organisation gave a stark assessment of the fiscal challenges awaiting Andy Burnham when he becomes prime minister next week.

They added

[I]f a tax increase became “a last-resort necessity”, raising VAT would be the “most prudent” way to limit the damage to the economy, the OECD said.

This is disastrous advice. The right answer to what is required if additional tax revenue is required in the UK is the recommendations made in the Taxing Wealth Report. They are progressive, imposing any additional demand on those best able to pay, and would deliver tax and social as well as economic justice as a result.

Instead, what the OECD is proposing is a deeply regressive tax, which I define in the glossary to this blog as:

A regressive tax is one where as a person's income increases the amount of that tax that they pay reduces in proportion to that income even if it increases in absolute amount, i.e. their percentage tax rate falls as their income goes up. Compare with progressive taxes and flat taxes.

This is, of course, the case with regard to VAT. Those on low incomes in the UK spend almost all their earnings, and will therefore be hit by high rates of VAT in proportion to their income. In contrast, almost by definition, those with higher income and wealth do not spend all their incomes, and much of what they buy does not carry VAT, as the tax is heavily biased in favour of wealth. I explained this in a recent video.

I know there are those who do not agree. The Institute for Fiscal Studies has argued otherwise, but to make their wildly inaccurate claim that VAT is progressive, they defined it in proportion to spending. If you rig the data, you get outcomes as misleading as those that the IFS have claimed on this issue.

In 2011 I wrote a report challenging their view, backed by data. Nothing much has changed since then. That report is available here. 

The world's tax economists hate ordinary people; their recommendations make that clear. They also hate tax justice. They are biased to wealth. Expect Shabana Mahmmord to listen to them if she is Chancellor.

I am very worried.

Please note: this is the second version of this image, correcting a previous minor error in Box 8.

DEBATE AMMUNITION

The Treasury View: Why the Crowding Out Doctrine Is Wrong

Funding the Future | July 2026

Topic

Why the Treasury View, the century-old doctrine that government spending crowds out private investment, rests on a false premise that money is scarce. The real constraints on public spending are people, skills, materials and capacity, not money.

The video that this Debate Ammunition supports is available here.

The Core Argument

The Treasury View holds that government spending simply displaces private spending, because both compete for the same scarce pool of savings. That assumption was only valid under the gold standard. It has not been true since Britain left gold in 1931, and the US broke the dollar-gold link in 1971.

A currency-issuing government creates money when it spends, just as commercial banks create money when they lend. The Bank of England has confirmed this. Under a law dating to 1866, the Bank is required to pay whatever Parliament has approved, it does not first check whether tax receipts are sufficient.

The real constraints on government activity are never monetary. They are people with the right skills, technology, materials, energy and environmental capacity. The Treasury should stop asking 'where will the money come from?' and start asking 'do we have the real resources to do the job?', because money is always available, and real resources sometimes are not.

The Argument Structure

Step 1 — The Treasury View and its hidden assumption:

Created in the 1920s and 1930s, the Treasury View holds that government spending crowds out private investment because both compete for a fixed stock of savings. The doctrine only works if the government must tax or borrow before it can spend. That was true under the gold standard, which constrained the money supply. It has not been true since that standard finally ended in 1971.

Step 2 — The gold standard is long gone:

Britain left the gold standard in 1931. The US broke the dollar-gold link in 1971, definitively ending Bretton Woods. Since then, governments that issue their own currencies create money when they spend, just as commercial banks create money when they lend. Applying a gold-standard doctrine to a fiat-currency economy produces systematically wrong conclusions.

Step 3 — How spending actually works:

Parliament passes a budget. Under an 1866 law, the Bank of England is then legally required to pay whatever the government instructs, increasing the government's overdraft in the process. Commercial banks are credited with the resulting money. Tax comes later, withdrawing money from circulation to prevent inflation. And government borrowing gives savers a secure deposit vehicle; it does not finance spending.

Step 4 — The correct question to ask:

Because government creates money, it cannot crowd out private investment by competing for a finite supply of funds. It expands the financial assets available to the private sector. The real question is therefore never 'can we afford it?' but 'do we have the real resources, the trained people, materials, capacity and ecological headroom, to deliver it?' If those resources exist and are idle, failing to deploy them is a political choice, not an economic necessity.

Their Argument → Your Rebuttal

The One-Liners

“The Treasury always asks where the money will come from. The right question is whether the real resources exist to do the job.”

“You cannot crowd out private spending with government spending when the government creates the money in the first place.”

“Tax doesn't fund spending. It cancels the money government spending created, so inflation doesn't happen.”

“Crowding out is a doctrine from the gold-standard era being applied to an economy that left the gold standard nearly a century ago.”

“The shortage is never money. The shortage is political ambition.”

Questions to Ask

If the government must tax or borrow before it can spend, why has the Bank of England been legally required since 1866 to pay whatever Parliament has approved, without first checking whether tax receipts are sufficient?

Which specific real resources such as trained workers, materials, productive capacity, does the government actually lack for the spending you oppose, and which do you simply assume are unavailable?

If government spending merely replaces private spending, as the Treasury View insists, how do you account for the multiplier effect, in which one person's government-funded income becomes another person's private income, expanding total economic activity?

When a minister says 'we cannot afford it', are they describing a genuine shortage of real resources, or making a political choice and dressing it up as an economic necessity?

Further Reading

It sounds technical, but it affects almost every political debate you hear. Whenever politicians claim that “there is no money”, that government spending must be cut, or that public investment has to wait until taxes rise or borrowing falls, they are usually relying on this way of thinking.

In this video, I explain where The Treasury View came from, why it emerged in the 1920s, why Keynes challenged it during the Great Depression, and why, despite that, it continues to dominate thinking inside Whitehall today.

More importantly, I explain the hidden assumption on which it depends: that government must first obtain money through taxation or borrowing before it can spend. That assumption no longer reflects how a modern currency-issuing government actually operates.

Instead, I explain how government spending is authorised, how money is created, why taxation comes later in the process, and why the real limits on government spending are not financial but the availability of people, skills, technology, energy, materials and environmental capacity.

If the Treasury misunderstands how government finance works, it is no surprise that we have politicians making terrible political choices that are presented as economic necessities.

If you’ve ever wondered why Britain is told it cannot afford better public services, infrastructure or investment, this video explains the economic doctrine behind those claims.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

There’s something that you need to know about because it’s really important in the economic life of this country, and that is what is called The Treasury view. This describes the underlying logic of the UK Treasury, based in Whitehall, which lasts from government to government, because it is the view of the civil servants who manage that department on behalf of the government, and supposedly on behalf of the Chancellor of the Exchequer, but who persist between governments and who have perpetuated this Treasury view for about a century or more now.

The Treasury view says something quite simple. It was created in the 1920s and 1930s, and it assumes that when the government spends, it uses scarce savings that would otherwise be available for use in the private sector. And so if the government spends more, the private sector spends less. Therefore, it is argued by the Treasury that public spending “crowds out” private investment. And the argument goes, again, inside the Treasury, that because the public knows more about what they want to spend on than the government does, private spending is always better than public spending and so public spending should be kept as low as possible. That is the Treasury view.

But this view is wrong, and it is wrong because underpinning it is a key, and hidden assumption: that the government must obtain money before it can spend. The assumption is that the government must tax or borrow before it can ever consider spending. And let me be clear, in the 1920s, when Winston Churchill took us back onto the gold standard for about six years, that was true. We did have to tax or borrow before the government could spend.

But what was true a century ago has not been true since 1931, sort of in the UK, and 1971, definitely in the UK, because that’s when we broke the tie with the US on exchange rates and when the US broke the tie with gold, and so this assumption that the government has to tax or borrow before it spends is just wrong.

Why is it wrong? Because we have a government that creates and issues its own money. When the government spends, it creates money, just as when a commercial bank lends, it creates money. That is absolutely, certainly true. The Bank of England has confirmed it to be the case, and yet the Treasury does not accept that. They do not think that the power to create the money that funds government activity is under their control, and yet it is.

And this view is, as a consequence, deeply damaging.

The view says that deficit spending cannot increase total output within the economy.

Why? Because it is said that it replaces private-sector spending instead. So, nothing new is created by government spending according to this view.

Now, Keynes challenged this view in the 1930s. We know he did. We know that he did so successfully. He changed the world’s perception on deficit spending because he proved that, in times of economic downturn, the government had to spend because the private sector wouldn’t. The fact that the Treasury assumed that the two are alternatives to each other was false.

But it’s still the case that many in the UK Treasury, and other treasuries around the world, do not accept this reality of life. And that is the case in the UK at present, and is why the Treasury still says government spending must always be cut.

The reality is that government spending does something very different. As I’ve said very often on this channel before, but which I’ll repeat now because a bit of reiteration never does any harm, the government authorises its spending not by looking at a piggy bank; not by checking its Bank of England balance; not by deciding whether it’s got enough money coming in from spending or borrowing, but by passing a budget. That is what makes government spending possible in this country. When there is a legal budget, the Bank of England is required under a law created in 1866 to pay whatever the government instructs. It doesn’t have to check whether the government has any money. It simply increases the government’s overdraft. And that might only be for a few hours under the way the current system works, but that is exactly what it does.

Commercial bank accounts are then credited with the amount of money that the Bank of England has created. And those commercial bank accounts are then used to make the payment to the recipients of the money that the government wishes to spend; whether that be you, as an individual receiving a pension, a salary, a benefit or whatever it might be; or whether that be a company or somebody else who’s providing a service to the government. It doesn’t matter. That’s the process that’s always used.

And then tax comes later. Tax comes because if the government kept creating money, we’d get inflation. And so money is withdrawn from the economy because that controls the risk of inflation. And that money flows from you to a commercial bank, to the Bank of England, back to the Treasury. The process runs in reverse, therefore. And that’s how the books ultimately come broadly into balance, with government borrowing happening because the government chooses to provide a safe place of deposit to those who want to save their money with the government, not because that borrowing will fund spending. That’s why the Treasury view is wrong.

When we look at this real way in which the money works within the economy, the government is not competing with the private sector for a stock of money because the government creates the money. In fact, the government expands the financial assets available within the private sector because it creates and spends money. Therefore, the real constraint on government economic activity is never money. The real constraints are people, skills, technology, materials, energy and environmental capacity. We have to live within the limits that climate change will allow.

But we still hear The Treasury View being rolled out time and time again. Politicians say we cannot afford it. There is no money. And so public investment is cut. Public services are allowed to deteriorate. Infrastructure is weakened. Growth slows, and living standards suffer, partly because social security is reduced as well. But not just for that reason. It’s also because there isn’t enough government spending in the economy to create what is called the multiplier effect, which is where one person’s income is then spent to become another person’s income, and on and on and on.

The shortage, then, is never money. The shortage is of political ambition, and The Treasury View now provides a convenient excuse to hide that lack of political ambition, coupled with the neoliberal desire to shrink the size of government.

The Treasury always asks, “Where will the money come from?” My view is they should say, “Do we have the real resources to do the job?”

The Treasury says, “If we can’t find the money, we can’t do it.” My view is if the government could find the real resources to do the job, it should create the money to deliver the outcome because the money’s always available.

The Treasury View mistakes a political choice for an economic necessity. A currency-issuing government is constrained by real resources and inflation, not by running out of its own money.

That’s my opinion. What’s yours? There’s a poll down below. Let us have your comments.

Poll

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

The infographic

Why did they say that? Because there has been a massive lobby against Ed Miliband getting this job, and he is now expected to be Foreign Secretary instead.

But let's just imagine what this means for a moment.

Mahmood is known to be from the far right of Labour. She is someone who, as Home Secretary, has tried not just to out-Tory the Tories, but also to out-Reform Reform. We can assume, therefore, that her economic thinking is very right-wing inclined, although the truth is that, as a lawyer, we have little idea what her economics are. She has never said much on the subject that I can find, but as a representative of Blue Labour I think we can safely predict that she will focus on:

• maintaining credibility with financial markets
• keeping borrowing under control
• respecting fiscal rules, at least until there was a political reason to alter them
• pursuing gradual rather than significant reform, if she does reform at all.

Is she, in that case, the Chancellor we need given the crises Burnham's government is going to face? The answer is, of course, that she is not. She is exactly what we do not need.

This country is facing many economic crises. We need radical thinking, a whole new economic framing based on modern monetary theory, and someone who puts people and not markets first at this moment, and it looks as though we are going to get someone who will do exactly what the deeply neoliberal thinkers in the Treasury tell her to do instead.

The next three years will be a disaster if she is in No. 11.

Thames Water might last a year.

The need of the people in the area it serves for water will last in perpetuity.

How is Andy Burnham going to solve that?

The need to do so might be existential.

What is he going to do about neoliberalism running out of road, or maybe water?

However, we have done two things.

Firstly, the search function has been considerably improved by now being based upon Google Advanced Search. This should definitely improve the outcome of anything you look for, but do remember that if you are searching for a particular phrase rather than individual words, you will have to put that phrase in "inverted commas" to get the result that you want. My own tests suggest that this is producing better outcomes.

Secondly, people have been asking for links to materials. As a result, the right-hand column of this blog has been redesigned. On mobile devices, or on screens which have been expanded to their maximum width, you might find this content below posts.

The redesign on my screen looks like this:

The first new link is to a page that explains how to use this blog to newcomers. There is no content behind this as yet. I have not got that far. But I will, and suggestions for inclusion in that guide would be welcome.

Below that, you can find links to the publications we are currently producing. Three of these are live, and are to our e-books, the PDFs of the View On series, and the PDFs of the Debate Ammunition series. All of these can be downloaded free of charge. You will be invited to make a contribution if you so wish, but I stress that you are welcome to ignore that if that is your inclination.

The fourth element here, which is not live at present, will be for the images or infographics that I am now creating. It is likely that these will be PDFs because that makes it much easier to deliver downloads. Please do let me know if other formats are desired. These other formats can, of course, be downloaded already from the posts themselves. For example, this morning’s image can be downloaded by right-clicking it and selecting "Save Image" as a .png file.

Give me a few days, and these things will fall into place in better shape than they are already, but of the six functions, four are already working, and I only briefed Andy on this yesterday afternoon. We’re doing quite well in that case.

I hope these help.