CORONAVIRUS has proven that austerity was a political choice and that the ‘Magic Money Tree’ really does exist, progressive economists have said.
Whether it be Joe Biden’s $1.9trillion relief bill or Rishi Sunak’s £50billion furlough scheme, centrist and conservative governments have suddenly found a way to spend in the public’s interest. All it took was a pandemic.
In an event for Let’s Talk It Over entitled ‘The Austerity Doctrine in the Time of Coronavirus’, Yanis Varoufakis, Stephanie Kelton, Naomi Klein and Brian Eno discussed whether the “pandemic has ended the reign of austerity as policy and mindset”.
Stephanie Kelton, a former economic adviser to Bernie Sanders, said: “Everything was in a budgeting framework and then Covid happened.
“Governments started committing huge sums of money. So where does it come from? The CARE act, for example, was Congress’ way of ordering up $2.2billion from the Federal Reserve.
“They can commit to spending money that they do not have. If the votes are there, then the money follows.
“Almost no-one believes any longer that the ‘coffers’ can be empty.
“Everyone can now see that the government no longer needs to keep its powder dry.”
As Kelton explains in her now famous tome, countries that print their own money can easily spend their way towards economic prosperity without any notion of paying it back – as long as the economic potential of the nation is not reached.
[READ MORE: Modern Monetary Theory in a pandemic: Stephanie Kelton’s ‘The Deficit Myth’ has added significance in the Covid-19 era]
In the US, the total federal debt is nearing $30trillion – but does it really matter? To enact austerity to ‘pay for’ a year of generous public spending would not achieve anything except for a downward economic spiral, Varoufakis said.
The former Greek Finance Minister added: “I’m calling in from the epicentre of austerity. If there was a New Deal in 2011, after we had lost 25 percent of our GDP (in the crisis), it would have been a majestic success.
“But instead, we continued and had a downward spiral.
“We need to have major debt restructuring at the public and private level for countries that don’t have the same privilege as the United States in printing their own money.
“The nightmare of the powerful is that the weak have alternatives. So when they hear about Universal Basic Income and job creation schemes they think it will become a nightmare for them.
“As oligarchs, they are following the right instincts. Using the ‘magic money tree’ to empower the power is seriously circumscribing their own power.”
In essence, the powerful adore austerity and malign public debt because anything close to Modern Monetary Theory would give working people too many alternatives, Varoufakis said.
Naomi Klein claimed that tax rises after the pandemic are a necessity – but only on the rich. Modern Monetary Theory dictates that one of the roles of taxation, in addition to curbing inflation, is to reduce inequality.
She explained: “In theory, we need to raise taxes on corporations and the wealthy not because we need to do it, but because of the levels of inequality.
“It’s also a moral hazard for the wealthy to not have to live in the mess that they made. We’ve seen the wealthy retreat into their castles, as it were, and the pandemic has made this even more apparent.
“Austerity is about disciplining a workforce.”
It may be unlikely that conservative politicians will want to extend the opening of the public purse to ordinary people any longer than necessary. Last month analysis from the Institute of Fiscal Studies showed that Britain could be headed for another era of austerity under Sunak.
With Keir Starmer providing little in the way of opposition to the government – except when it comes to raising corporation taxes – it’s clear that the grassroots response to any post-pandemic doctrine imposed on the public is crucial.
Brian Eno, an early member of the Democracy in Europe Movement 2025, concluded: “I am hopeful Covid will prove to be a different kind of turning point.
“The only times inequality stops rising is when there is a war, a plague or when the state collapses.
“We are also going to see a revolution in economics, one that became conspicuous in 2008 after the financial crash.
“Suddenly, when Covid comes along, there are vast amounts of money available. It turns out you can just make money, and everyone is doing it very happily.”
Featured Image: Valerij Ledenev @Flickr
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