Conor here: According to the Kiel Institute, the UK has shoveled 19.266 billion euros into the corrupt hole of death that is Ukraine, which is always worth remembering when elites deliver the message that there’s no money.
By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK.
In a post I published here yesterday, I explained that in a country like the UK, which issues its own currency, has an effective tax system, a functioning legal system, and with that currency being acceptable for international trade, government spending always comes before tax.
That is not just a technical insight into how public finance works. It is, in my opinion, a political game-changer. A commentator then challenged me on that and asked how this might assist younger people in particular. I will define those as being under 35, or perhaps under 30. Then my focus is on how this understanding might let us tackle the structural crises that are shaping the lives of people of that age, so that people of my age do not leave them a politics of permanent scarcity, as could happen unless we change our economic narratives.
If we think “tax comes before spending”, that story is necessarily one of limits. That narrative suggests that we can only achieve better housing, jobs, education, or climate action if the money can be “found” through higher taxes, borrowing (which they choose to forbid to eliminate that choice), or cuts in government services elsewhere. The result is a politics of managed decline, where almost nothing ever changes.
If, on the other hand, we understand “spending comes first”, the story changes. The question is no longer “can we afford it?” but is, instead, “do we have the resources, skills, and technology to do it?” If the answer is yes, then, as John Mastnard Keynes once noted, whatever it is we want can be done. The government can create the money, direct the work, and use taxation afterwards to keep the economy balanced, and that opens the door to a completely different policy agenda for younger people for all the reasons I note below.
Removing the “There Is No Money” Excuse
The most corrosive political message in the UK over the past fifteen years has been that “there is no money left”. It is the line used to justify cuts to public services, freezes in pay, and neglect of infrastructure.
Once we accept that spending comes first, this argument collapses. This correct narrative makes clear that the state is not dependent on tax revenues to act. It is dependent on the capacity of the economy to deliver what is needed. If there are unemployed or underemployed people, unused capacity or idle resources in the economy – whether in the state or private sector – the government can put them to work.
For younger people, this means public investment is always possible if the political will exists, whether that is in housing, jobs, climate action, or education. The barren landscape they now face can be transformed.
Full Employment and Skills Guarantees
In particular, understanding spending-first economics means the government can guarantee work, training, or education for everyone who wants it.
For those under 30, that could mean:
- Funded apprenticeships linked to the industries of the future and the continuing needs we know we will have.
- Guaranteed graduate placements in public service or climate projects for those who need them.
- Paid vocational retraining for those in insecure or low-paid work so that the economy can enjoy the benefits of people’s improved skills, which must become the core of the supposed productivity agenda, which has, in the current government’s hands, appeared to be all about eliminating people from the workplace rather than about empowering people within it.
In other words, rather than leaving young people to compete for a shrinking pool of “opportunities”, the state could instead create those opportunities directly, without waiting to “raise the money” first.
Housing as a Political Choice
Britain’s housing crisis is not the result of empty Treasury coffers. It is the consequence of decades of political choices: restricting social housing, treating homes as speculative assets, and refusing to plan for need.
Spending-first economics makes it clear that large-scale investment in social and affordable housing is always possible. The only real limits are the supply of land, skilled labour, and materials — all of which can be planned for, which should then become the focus of government attention. The dependency on private sector house building alone would end: the state could instead begin to drive this sector again, as it did for forty or more years from 1945 onwards.
For younger people, that should mean that secure, affordable rents and the chance to own a home cease to be a pipe dream.
Universal, Affordable Childcare
Childcare in the UK is currently among the most expensive in the OECD. This cost locks many young parents, and especially women, out of the workforce, limits career progression, and deepens inequality. With a spending-first approach, universal, affordable childcare is entirely possible. The government can hire and train carers, build facilities, and fund provision directly. The benefits, including higher employment, greater gender equality, and better early-years outcomes, would repay the investment many times over, as is seen in the many countries where this cost is capped for this reason.
Education at All Levels
Investment in education is not a “cost” in the spending-first framework. It is a choice to develop human capacity. That means:
- Properly funding school education and reimagining its role so that all children and young people can achieve their potential, when its current focus is on producing compliant workers for jobs that very largely no longer exist.
- Restoring university maintenance grants to eliminate inequality in this area.
- Reversing cuts to further education colleges.
- Funding lifelong learning so skills can be updated throughout a career.
If we can afford to waste young people’s potential as we do now, we can certainly afford to develop it.
Student Debt Relief
If the government can create the money it spends, then the argument that student debt must be carried for decades to avoid “costing the taxpayer” is false. That debt is a political choice, not a financial necessity. Student debt has always been a game of government financial engineering from which private sector financiers ultimately gained, and has never been about funding education, which has always, and as a matter of fact, been paid for up-front by the government, without exception.
Correctly understanding government financing and the role of both tax and debt within it enables consideration of either cancelling or radically reducing student debt, which would free up income for housing, family formation, consumer spending (which is key to continuing economic viability) and even pension provision, all of which stimulate the broader economy. Considering how to reduce this debt within a proper understanding of government financing is, then, an investment in future productivity and social stability, not a drain on public resources.
Climate Action Without Delay
Younger generations will live with the effects of climate breakdown for decades, and most certainly long after I am gone. It is a prospect that now haunts me, and continually reminds me of the failure of my generation when I knew this might happen when I was myself a teenager. A “tax first” mindset delays action until the “money can be found”. By then, it may well be too late.
A spending-first approach allows immediate investment in:
- Renewable energy infrastructure.
- Home insulation and retrofitting.
- Low-carbon transport systems.
- Flood defences.
Taxation can then be used to prevent inflation and to steer behaviour towards sustainable choices.
Tax for Fairness, not Funding
If tax does not exist to “fund” spending, it can be used to shape society. This is tax as an ‘economic steering wheel’ as I described it in the post to which I linked at the top of this one. This then means that tax can:
- Reducing extreme wealth and income inequality.
- Discouraging harmful economic activity.
- Supporting redistribution between regions and communities.
For younger people, that means a fairer distribution of power and resources so that opportunity is not locked up by those who already have it.
The Political Choice Ahead
If we accept the household analogy, younger people face a lifetime of economic scarcity, under-investment, and deferred promises.
If, instead, we understand that as a matter of fact, spending comes before tax, we open the political space to demand secure homes, good jobs, free education, affordable childcare, and a liveable planet now, and not in some imagined future when the books “balance”.
The truth is that the future younger people inherit will be decided less by the constraints of economics than by the limits of political imagination. That is why understanding “spend before tax” is not an abstract macroeconomic debate. It is the foundation for a politics that can actually deliver for the next generation.
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The fact that the credit theory of money is obviously correct (known today as Modern Monetary Theory), as pointed out by Mitchell Innes more than a hundred years ago, has not seemed to influence much the economics profession or the policies that are actually enacted. Obviously, as Murphy points out, this is a political question, not a technical one. I remain with the bearded one’s assertion that the state is the committee for managing the affairs of the bourgeoisie, which means that it will not enact technically perfectly feasible policies which would make a lot of people’s lives better because it might either reduce workers desperation (and willingness to work for pauper wages or endless hours) or have to tax profits a little.
I completely agree but…
The job guarantee is standard MMT.
National projects as advocated by Mariana Mazzucato have an important role in competing with private sector central planning.
Much resources (money) can be wasted, too. The state will need to re-learn how to evaluate achievement of public purpose – program effectiveness vs whatever is meant by cost-cutting ‘efficiency’.
Taxation is key. It is not so much the case that fiat governments are not ‘printing’ money but that it is flooding into savings through the so-called ‘borrowing’ mechanism – swapping reserve money for bond money. The consequence is turbo-charged inequality and the inflation of asset prices everywhere.
Taxation is what keeps government spending in the real economy – ensuring government spending is redeemed rather than syphoned into the pockets of the wealthy. Payroll deductions are nothing more than a tax on paycheques and should be abolished. Ditto income tax up to a point – why redeem spending before it has even got into the economy. Ditto sales taxes (and dare I say it, tariffs) – again, up to a point. Instead, taxes should be deeper in the economy after spending has enabled commerce and income, ie, on corporate profits, on anything and everything to do with unearned income, including, at last, a financial transaction tax, and on all activities that lead to social, environmental and any other kind if damage – gambling as well as emitting CO2.
It would mean a revolution in capitalism as we have come to know it.
Murphy has written on numerous occasions that he is against the jobs guarantee, amd this separates him from Bill Mitchell, Warren Mosler, Steph Kelton and the MMT lead group.
Nor does this blog post advocate that.
Under MMT, monetary policy – so basically manipulation of interest rates – is seen as only an alternative to fiscal measures in removing money from circulation as taxation, to limit aggregate demand and hence inflationary pressures.
I see the essence of Murphy’s piece as:-
If… we understand “spending comes first”, the story changes. The question is no longer “can we afford it?” but is, instead, “do we have the resources, skills, and technology to do it?”
If the answer is yes, then, as John Maynard Keynes once noted, whatever it is we want can be done.
However, this is not within the conventional UK Treasury mindset, and probably never will be under the dominant neoliberal dogma, which calculates costs but really does not evaluate benefits, or even accept that infrastructure has a useful collective national asset value.
If a £4bn transport infrastructure development generates £6bn of benefits, then only the costs seem to enter the deficit/debt equation.
The UK Treasury political priorities are Pavlovian in limiting the deficit/debt numbers. As we still have the ideology that government spending substitutes for private investment – so “crowding-out” as an excuse for lack of public investment to justify the rectitude of career Treasury civil servants, then we never will see the ravages of Thatcherism reversed.
Herein lies the problem of the conventional wisdom, which still represents those very doctrinal positions that JMK fought against in the 30s, and which the Chicago School in particular has since pushed back against for well over half a century now. Corporate capitalism simply cannot accept any other orthodoxy much beyond Marshallian theory, which it sees as empowering, hence the oft repeated myth that the City controls the bond market and hence the City has final veto on government spending programmes.
Amongst others, Murphy has, rightly, regularly debunked this assertion of dominance.
Everyone with a foot in the MMT camp knows spending comes first and will broadly agree with everything Murphy writes. If I have a quibble it is his seeming inability to recognize others’ contributions, including the founders.
The job guarantee is a good example. Apparently, ‘Full Employment and Skills Guarantees’ are okay but not a Jobs Guarantee. We seem to be trying hard to find ways to split hairs? Mitchell and Mosler disagree too but the point is that another plank of conventional wisdom is challenged – that only private-sector jobs are ‘real’ while public-sector are wasteful boondoggles.
On monetary policy, Mosler is clear and, I think, correct – a zero rate policy. And read Blair Fix on inflation – a complex issue and nothing like what is popularly imagined. It’s hard to avoid the conclusion that ‘managing’ the interest rate is nothing more than an arrangement to send ‘wealthfare’ cheques to the 1% while welfare is being defunded.
We appear to agree that redeeming spending rather than diverting it into savings is the way to go but I have seen little evidence of Murphy really getting to grips with this? Maybe I haven’t followed closely enough?
The first thing I did when I saw this article was to hit CTRL-F on the page to search for Kelton’s name. Curiously avoided seeing as she was the first one (to my knowledge) to explain fiscal policy as STaB (correct order: spend, tax, borrow) versus TaBS (widely incorrectly accepted: tax, borrow, spend). I’m not too surprised that the acronym seems to have been avoided – MMT has been a divisive topic on both sides of the pond. To say that the economic orthodoxy has dug their heels in to prevent its advancement as the correct school of thought would be an immense understatement.
Nevertheless … thanks for sharing. This hits all the notes. We can afford it all. TINA is a lie. Taxes for revenue are obsolete.
It’s True. All Of It. (via YouTube) … :)
Political Will, and Political Won’t.
AI on the wax portends a significant need for a change in thinking about what we can and must do.
We seem to be heading 180 degrees the wrong way.
I must have missed something somewhere. If the real question is :”do we have the resources, skills and technology”, how does that help the UK? The UK,like every other European country,is exhausted,lacking in even basic leadership skills, bereft of physical resources and rapidly falling behind in virtually every leading technology. Yes, the government can create money, but what would it spend it on? Great Britain can’t even keep its aircraft carriers operational. I’m afraid the estimable Mr. Murphy, whose writing I have often found incisive and persuasive, is living in the past–when the UK actually had some economic,political and military and technological heft.
The UK should embrace its future as an open air museum of the past glories of European civilization.
I think you hit the failure-of-imagination nail right on the head. Mariana Mazzucato challenges us to imagine what is ‘value’ and how to direct resources into national projects that improve our lives and environments vs ‘keeping aircraft carriers operational’ – https://marianamazzucato.com/talks/past/. She makes the vital point that we have lost the ability – even the awareness – to ask questions that matter.
And, btw, the past ‘glories’ of European so-called ‘civilization’ are yin-and-yang with what most people across the world remember as aggressive and ruthless colonialism.
It’s not a failure of imagination.
It’s an oligarchy that pays for a system of political parties whose function is to frame the choices presented to voters to avoid dinging oligarchs rent streams.
As privatization advanced, most everything once public has been converted to an oligarchs rent stream which, as it advances, leaves less and less meaningful change that can be risked to voting without upsetting some oligarchic apple cart. There’s plenty of imagination about but no mechanism for operationalizing it, and plenty of tools for suppressing it.
I enjoyed your quip about billionairization.
I agree there is no lack of ideas, even of imagination. But it is shallow and diffuse.
I’m thinking of the simple statements that still resonate – even if they have lost meaning they are still full of it for most.
Margaret Thatcher, ‘There is no such thing as Government money there is only taxpayer money’ and, of course, TINA – there is no alternative.
And Ronald Reagan, ‘The most terrifying words in the English language, I’m from the Government and I’m here to help’.
After 50 years we still don’t have a defence let alone a rebuttal.
We’re getting there, I saw a pithy tweet yesterday to the effect, “they want us to buy, but they don’t want to pay us.”
There’s growing clarity in the excess of normalized exploitation that is beginning to yield up new aggregators and aggregations addressing the collective action problem.
… what is ‘value’ and how to direct resources into national projects that improve our lives …
The danger in the “spending first” approach is to wrongfully presume that the failure to spend more is what is holding us back. It remains possible to spend more — a lot more — and see no real benefits … if corrupt interests and the rentier class are vacuuming up all the additional spending. While living in the US, I always wondered “where does all the money go?” You pay all sorts of taxes, but you still have to pay obscene amounts for health care, higher education and all sorts of insurance. IF money is spent smartly, we can afford it and we can accomplish a lot. But that is a big “IF”
You seem to miss that all the categories that you cite as too pricey are substantially or entirely privatized. The end of US higher education as an affordable good started in the 1980s, thanks to Reagan free market ideology, when states greatly cut their support of state university systems.
On spending first, let it now be me to be the one to quote Margaret Thatcher – there is no alternative. Whether fiat governments know it or not or like it or not, they spend first. And it was ever thus. Randy Wray is fond of reminding us of the centuries of tally sticks – when government wanted to requisition resources from the economy they did not tax first, they cut down some more hazel-wood. It’s sobering how the move from sticks to paper has befuddled us so badly.
And yes to being privatized to death – the penultimate stage of today’s capitalism – the ultimate being Mike Hudson’s collapse when we are collectively unable to pay all the rents.
But I also agree with the dangers inherent in spending first. I’m a fan of John Seddon who is not generally recognized here. His intellectual contribution is the distinction between ‘value demand’ and ‘failure demand’ into an organization. You don’t need ‘corrupt interests and rentiers’ – just sloppy processes – to fritter money away and make programs ineffective. Seddon estimates that half of what governments spend on care services is wasted. His famous conclusion – ‘If you manage costs your costs will go up, if you manage the quality of your services their costs will fall out’. It’s the Toyota method.
So yes to governments spending more first but only on two conditions – they make sure the spending is redeemed but also that they regain the management capacity to evaluate achievement of public purpose.
And critically, this means NOT hiving off services to the private sector with performance metrics that have nothing to do with achieving purpose and everything to do with cost ‘efficiency’, which quickly morphs into profitability – at the public’s expense.
You are right to correct me that is more than just an issue of corruption and rentier capitalism. It’s a bigger problem of the ongoing crapification of our institutions and the lack of accountability to show results. On one hand, insufficient investment cements the crapification. On the other hand, spending more does not necessarily reverse it either. For example, I am a big proponent of public education — we need to have a well-educated populace with fair opportunities for everyone. Yet it seems the more money we spend, the worse things get. But I do not know how to fix that ….
Our minds are one.
John Seddon’s career has been to fix it – his corporation is Vanguard -https://beyondcommandandcontrol.com/
He espouses the Toyota method for service organizations public and private.
Just as Toyota reformed manufacturing by emphasizing continual process improvement vs cost cutting, Seddon’s view is that managers must study systems and continually improve them to eliminate waste – mostly so-called ‘failure demand’. He regularly shows cost reductions of 50% and, of course, much improved systems and customer satisfaction.
The key point is that this work can NOT be done by a remote accountant with a sharp pencil.
It is not just neoliberal economics that has taken us down the garden path but MBA management that has no interest whatsoever in operational realities.
Thanks for your reply.
“The truth is that the future younger people inherit will be decided less by the constraints of economics than by the limits of imagination.”
And that political imagination should be fired by open debates and discussion about the best structure for a future banking system that can help guarantee greater prosperity for young people. Taken my populist biases, I will be arguing for a careful examination of a more decentralized system of money creation–following principles of subsidiarity.
Both China and Germany offer persuasive historical models. China quickly switched from an erratic growth pattern before the era of Deng to a stable system of double-digit growth which it maintained for 4 decades, lifting 800 million people out of poverty. Germany, in its immediate post World-War II years, had a banking structure that consisted of thousands of small local banks that primarily lent for productive business investment automatically ensuring a bias towards productive business investment by small firms, hence resulting in job creation and prosperity that was more evenly distributed across the country.
Couldn’t agree more with Girard when he states:
“Mimetic desire is everything. It can be murderous, it is rivalrous. But it is also the basis of heroism and devotion to others and everything.”
“This capacity for imitation–this “extreme openness” to others–even if regularly resulting in violence, is not inherently violent.”
As also noted in the wonderful essay “From Philosophy to Power,” the scholar Heinrich Meier remarked that:
“We know ourselves insofar as we know our enemy and insofar as we define our enemy by defining ourselves. We recognize as our enemy the one who calls us into question, or whom we call into question as we come to know ourselves and make ourselves known to ourselves and others. The enemy becomes, against his will, our ally in the journey toward self-knowledge…”
I believe this kind of personal introspection may be a key step to overcoming the friend/enemy dynamic of Carl Schmitt as well as Peter Thiel. I would also guess that, deep down, Thiel may also understand this insight–he just hasn’t had the courage to go there–yet.
Successful billionaireization is a known antidote to introspection.
Thanks, Gulag.
The first Girard called internal mediation, the second external mediation. Enemy as scapegoat seems fundamental to me. In one to one internal mediation you might get to know your enemy, but at the level our nation’s at now our enemies are scapegoats I think [and Trump doesn’t know Putin at all]. The prelude to that seemingly is that in the center things get intense.
https://thefloutist.substack.com/p/centrism-as-despotism
The invasion of the smart phone minders is like telescreens having been multiplied by about a few hundred million (there are 2 billion users IIRC, but there were a lot of telescreens around in Orwell’s novel). In the center there is competition to be dedicated, to fit the mold. Hence Girard’s use of the term undifferentiation. The powers that be can use this tension in their wars. Of course, you wonder if a steady state version of this [sacrificing, lives] could give way to one or both of two big sacrifice eventualities, the first non nuclear…the second nuclear.
If Girard’s word undifferentiation could replace the word fascism, maybe you could shorten it to undiff?
Agreed.
Continual success is a real barrier to introspection.
There is nothing like a long series of defeats (economic and political) to begin to stir a more self-reflective attitude.
I wonder if the key players in the Democratic Party will prove to be an exception.
They seem to enjoy doubling down, perhaps all the way to extinction!
Money love is a death cult! That’s our Ds!