Friday, October 12, 2018

Richard Murphy — We don’t need tax to fund the NHS, but we may increase taxes because we do

The way to fund £20bn of extra healthcare spending is for the government to create the necessary funding for that purpose. And it can do this at any moment. The fact is that tax does not precede spend. It is always, and inevitably, true that spend precedes tax. In that case the hypothesis that extra tax must be raised before the NHS can be funded is incorrect. What actually happens is that if the government spends an extra £20 billion into the economy, and increases GDP directly as a result (because government spending is part of GDP, because it creates wealth) then the government can, if it so wishes, claim back some, all, or even more of that spend in tax if it so wishes, with the possibility that it might claim back more than is even spent being made possible by multiplier effects, which are quite high in the case of NHS expenditure.
What it is important to stress though is that the reason to make that claim back by way of tax would not be to fund the NHS. That would make no sense at all, because the NHS would have already been funded: the expenditure does that. So the reclamation of that spend by taxation has to be for some other purpose. It may be to control inflation. It may be to reduce inequality i.e. taxing those with more than others simply for social purpose. Or it could be as part of the policy to control carbon use. And it may be for the delivery of some other government policy. But the funding of the NHS will not actually come into the equation. That problem is solved the moment the government decides to create the money to make the payment to provide the additional resources the NHS requires, as it may at any time because all money creation is ultimately under its control....
Tax Research UK
We don’t need tax to fund the NHS, but we may increase taxes because we do
Richard Murphy


Kaivey said...

Richard Murphy is a Quaker and it's a shame he doesn't attend a Meeting near me as we would have great conversions. I have lots of questions to ask.

If only the general public could be told this? With Ann Pettifore's article I put out recently, people could see how the money for government spending can be created without taxes and then used to drive the GDP, after which taxes are collected partly out of the new prosperity. A bargain!

But the establishment have no interest in letting the public know how public spending and taxation really works.

Ralph Musgrave said...

Murphy’s point is ridiculous. It’s blindingly obvious that it doesn’t matter whether spending takes place five minutes or one week before or after relevant taxes are collected. However, one year or three years would be a different matter. But he doesn’t tell us what time period he has in mind.

Second, if the economy is at capacity, i.e. if any extra spending without a corresponding amount of tax will prove inflationary, then spending $Xbn three years before $Xbn of taxes is collected just ain’t possible – unless you want excess inflation.

John said...


With respect to your second point, your claim is true but largely irrelevant. Other than perhaps during some period during the second world war, when have we truly ever been at full capacity? Forget the gerrymandered figures, unemployment is in the millions, and underemployment larger still, so the idea that we'll hit full capacity in the near future is fantasy.

Even a full-blooded commitment to the more radical proposals that the MMTers have come up with would take well over a decade to see the inflationary problems you foresee, and that's leaving aside any issue of transforming the economy into one that actually works for the majority: zero unemployment, homes for all, free education from nursery to university, free healthcare without rationing, getting rid of the debilitating PFI schemes and all the rest of it. Is it possible, we could have an inflationary spiral? Sure, but that's no more likely than the Communist Party of Great Britain winning a landslide at the next election.

You also don't take into consideration that all the MMTers have always been careful to repeat what you yourself have said: if, and it's a big if, inflation raises its head, then spending will by necessity have to decrease. For the life of me, I can't understand why inflation is considered the worst economic problem. In my eyes, having a large percent of people doing nothing, usually worse than nothing, is the worst economic sin, but we never seem to be overly preoccupied by that. Apparently, good economic policy is turning large parts of the country into an economic wasteland and ensuring millions of people live hopeless, pitiful existences, while pitting them against the rest of the working population, who aren't living any great life of luxury, contrary to all the drivel heard in the north about how easy the rest of the country's got it.

Ralph Musgrave said...

John, I meant "capacity" in the normally accepted sense of the word: i.e. the level of capacity at which furder demand will likely lead to excess inflation. For future reference, like most people, I use words in their normal or dictionary sense unless otherwise specified.

Re your puzzlement as to why inflation is considered to be a problem, that's explained in economics text books: briefly, inflation, particularly high levels of inflation brings big costs to households and businesses. Plus it does not necessarily bring any fall in unemployment. It simply brings chaos: at least in the case of hyperinflation.

John said...

Ralph, come off it! All the MMters accept what you're saying. Their issue is that capacity will not be reached without something close to world war scales of production, and even then inflation can be controlled by various measures. All of which is to say we aren't going to hit capacity, at least not with capacity utilisation at the pitiful rates we have and the millions unemployed and the staggering numbers of underemployed. So the issue does not even arise. Why worry about something that isn't going to arise? You may as well be worried about a zombie apocalypse. Although in a different context, Keynes answered this type of fear by saying "In the long run we are all dead".

As for inflation, of course it can be a problem, but nothing more than that, and not one that we don't know how to deal with. No one denies that. But is it the *GREATEST* economic problem? No, I don't think it is. Keynes and all the other great economists didn't think so, and for good reason. Is it a problem that can be handled with fiscal policy? Yes, and we should deal with it if and when it raises its head through fiscal measures.

The greatest economic problem is unemployment. The second greatest problem is poverty, although that is largely dealt with through decent employment. In *COMPARISON* inflation does far less damage than unemployment and poverty. I'm not talking hyperinflation or extremely high inflation. Moderately high inflation creates problems, although they can be solved if the will is there, but unemployment and poverty are a different matter entirely. It's the difference between being mugged and being put on a life support machine for decades. No one likes being mugged, but that is irrelevant. The choice on offer is between losing your wallet and being in a permanent vegetative state in a hospital bed for decades.

Ask anyone who lives in an old steel or mining town what they'd prefer: higher inflation or mass unemployment and a hopeless existence? I've never lived in any of these old industrial towns, but I have travelled through them and stayed for a few days on end. These places are soul destroying, replete now with substance abuse, crime, poor educational attainment, poor housing, poor life expectancy etc. Would I like my weekly shop and my energy bills to go up? No, of course I wouldn't. But if that's the price I have to pay (although in actuality we wouldn't have to pay that price) to ensure we can rid ourselves of these grim Eastern Bloc-like towns, then so be it.