Cooking the Books: Fantasy politics (and economics) (2019)

The Cooking the Books column from the December 2019 issue of the Socialist Standard

You can tell it’s election time. The parties are making all sorts of extravagant promises. The Tories are promising to spend an extra £20 billion a year on hospitals, schools and other infrastructure. Labour is promising an extra £55 billion. The Greens are promising £100 billion but, as they have no prospect of being put in a position to honour this, they can promise what they like.

It is not that the physical resources don’t exist to improve hospitals, schools, transport or to do what is needed to combat climate change. They do but, under capitalism, mobilising them has to be paid for, so it’s legitimate to ask where the money will come from.

The Tories say it’s going to come from the government borrowing it. Labour and the Greens say it will come from borrowing and also from increasing direct taxes on the profits of businesses. Neither of these two is suggesting conjuring the money out of thin air – which they might have done given that Richard Murphy, once one of Corbyn’s economic advisers, adheres to so-called ‘modern money theory’ which, in his words, ‘says governments can make money out of thin air’. And the Green Party is on record as wanting the power to create money out of thin air (that they believe the banks possess) to be transferred to a public body that will issue ‘debt-free’ money. The government could, as these theories in effect advocate, simply print the promised amounts of money but, as most people know this would cause roaring inflation, the leaders of these two parties don’t see this as a vote-catcher.

The Tories know well that capitalism runs on profits and that anything that impedes this risks provoking an economic downturn. While Labour and the Greens are saying that most of the extra money will come from borrowing, the Tories say that all of it will.

When a government borrows – and given the amounts involved here, it will have to be from capitalists – the interest payable has to come from taxes. This is not a problem as long as the economy is expanding; if this is the case even an increase in the interest rate won’t cause a problem as the increased revenue from taxes will be enough to cover this without requiring a reduction in other government spending. If, on the other hand, the economy is not expanding, as regularly happens from time to time, interest payments will eat into other spending.

The Tory and Labour spending promises both assume a continuously expanding economy; Labour’s is even supposed to bring this about. When, as proposed, a government spends money on infrastructure there will be some initial economic expansion through construction firms and other contractors having money to extend their business and take on workers. However, there is no guarantee that this will be sustained as the capitalist economy is not driven by government or consumer spending, but by capitalist investment in profitable productive activity. This is not something governments can control as, among many others, the last Labour government discovered.

Because the economy happened to be expanding, Gordon Brown assumed that this would continue indefinitely. He even proclaimed the end of the boom/slump cycle. He was wrong and, when the boom inevitably ended, his and subsequent governments found themselves in financial difficulty and, to protect profits, had to cut back their spending.

Aware of how capitalism works and of past experience of how it has worked, we can confidently predict that neither the Tories nor Labour will be able to honour their election promises. Eventually, for reasons beyond their control, the capitalist economy will stall and they will be forced to renege on them. History will repeat itself.