Two magic money trees and a helicopter

By Bernadette Meaden
June 28, 2017

When the end of austerity is proposed, well-worn arguments are rehearsed. The national economy is compared to a household, the budget deficit compared to spending on a credit card, and the famed absence of any ‘magic money tree’ is once again reiterated.

The problem is, these arguments, used to justify policies which have caused immense harm, are fallacious. The government is not a household. Households cannot create money, or borrow at practically zero interest rates, as our government currently can.

And as for a magic money tree – as Professor Emeritus Mary Mellor says in a brief and admirably clear article, there are not one, but two.  She explains, “there are two magic money trees. Both the state and the banks can create money out of thin air… So when we are told social welfare, education, housing, health cannot be afforded because there is no magic money tree, this is a lie.”

We have in recent years seen the state create £435 billion in quantitative easing (QE), but instead of being invested into infrastructure projects and public services, which employ people and circulate money around the economy,  it went into the financial sector and made the rich even richer, by inflating asset values. Indeed it was reported that “the average boost to the holdings of financial assets and pensions of the richest 10 per cent of households would have been either £128,000 per household or £322,000 depending on the methodology used”.

Imagine if that money had been invested in health, education, social care, and social security for the poorest people? It would have created secure well paid jobs, wages would have been spent in local communities, taxes would have been paid, and the stress, poverty, and misery created by austerity could have been avoided.

But as Professor Mellor says, “The right of states to directly fund public services (“people’s quantitative easing”), is denied. It is falsely claimed that all new money is ‘made’ by the market sector. This is not true, money is accumulated in the market. It can only be created by states or banks. “

People’s Quantitative Easing is not an outlandish idea. Last year, 33 economists wrote an open letter saying, “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.”

These direct cash transfers to households are often referred to as ‘helicopter money’, because in effect the country is showered with free cash, to get people spending and get the economy moving.  When economic strategists at Deutsche Bank saw the result of the UK's general election, they said it made "helicopter money more likely" and that UK policy needs to become more ‘redistributionary’.

If the government ignores such advice, continuing to underfund public services and making people poorer, we will leave our children a better national balance sheet but a far worse country to live in. Picture a Chancellor, triumphantly waving a balanced budget over a shabby, squalid, unpleasant, divided country. They make a wasteland, and they call it prosperity.

As Professor Mellor says, “Let us have no more myths about the lack of magic money trees. They do exist – what matters is who owns and controls them.”

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© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden

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