Thursday, 16 May 2013

Whose Money Is It Anyway?

When our country needs help, shouldn’t we all contribute more according to our ability for the sake of the common good? Some to their credit are willing to do just that, but others keep coming up with reasons why they should be left alone. One argument suggests what money individuals make is their business and no one else has a right to demand a share of it. Another claim that because of the ‘Debt Crisis’ there is simply no money left to share with anyone. And finally, there are those who insist that what spare money there is should only be lent to private individuals and firms, but it must not be invested in any form of public provisions.

Let us look at these arguments one by one.

For a start, it is obvious that though some people know how to make a lot of money, it does not necessarily follow they have a right to keep that money. For example, there is no legitimacy to the money-making activities of those who push narcotic drugs, traffick people, steal, con, or extort from others. There are also problems with people who pollute, promote addictive consumption, or tempt others into taking excessive risks with their money or their health. In all such cases, society has an interest in deciding what laws and policies should be put in place to curb the activities in question, which may involve taxing, fining or even confiscating the proceeds generated by them.

Apart from taking money from those who have acquired it by dubious means, a democratic state also has a responsibility to ensure sufficient resources are pooled together to deal with threats which would otherwise harm society. This can’t be left to individuals to chip in as they see fit, for the simple reason that there are inevitably freeriders who would try to benefit from the pot without sparing any of their own fortune.

At this point we hear the familiar cry of “There’s no money.” But has all the money really disappeared? In the UK, unclaimed assets – money sitting in accounts with no claimant – are conservatively estimated to stand at £77billion. Evasion and avoidance of taxes stash away another £120billion. And corporations outside the financial sector (ie they are not banks) are sitting on cash reserves of £756billion (Ernst & Young estimate). In truth there is plenty of money, the question is what should be done with it.

Many people seem to forget that when the banking sector was in danger of collapsing, it took bailout money from us via the state (estimate fluctuates between £500billion to 1trillion). Now the UK banks sit on assets of nearly £7trillion and pay out £13billion in bonuses (2012), yet some still pretend it would be sacrilegious to suggest that they should help the country by loaning, investing, or paying a windfall contribution to fund public works to revive the economy. These same people urge the banks to lend more to the private sector when private debt as % of GDP is six times higher than that of the public sector debt. Furthermore, while this approach is showing no sign of generating growth, a definitive study* has confirmed that a fiscal expansion funded by borrowing will lead to growth, and with the current unemployment level, reduce the deficit.

Let’s start using our country’s money more wisely.

[*The Economic Consequences of Mr Osborne - Fiscal Consolidation: lessons from a century of UK macroeconomic statistics, by V Chick & A Pettifor, University College London & Policy Research in Macroeconomics, 2010, revised 2011]