The case for a new Keynesianism when Labour returns to power

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There is little point in James Meadway regretting Keir Starmer’s lack of spending commitments while maintaining the fiction that “spending increases will have to be met by at least some tax rises” (Keir Starmer may win power, but he won’t be able to turn the UK around on the cheap, 9 January).

The government creates new money by instructing the Bank of England to credit private bank accounts to pay salaries, benefits, grants, etc. It needs neither taxes nor borrowing (its own money) to do this. Taxes cancel some of that money, but they have other important purposes. Tax rises to accommodate a “fiscal rule” serve no purpose.

The government’s economic remit is to facilitate the fair and efficient allocation of the real resources available – in the world’s sixth-richest country, we have plenty. It does this by spending and by curbing the power of other economic actors via taxation and regulation.

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We had the same real resources after the financial crash as we did before. There was never a need for austerity. It is time that the monetarist policies that caused the crash were replaced by a new Keynesianism in this age of free-floating fiat money.
Carol Wilcox
Highcliffe, Dorset

It was very disappointing to read James Meadway, the director of the Progressive Economy Forum, perpetuating an underlying institutional myth about government expenditure.

How do you know if it’s spending or investment? In popular political discourse, if money is being devoted to the creation of private profit, it’s investment, but if it’s being devoted to health, security and education, it’s spending.

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What nonsense. Intelligent investment is about allocating resources in the most effective way, which will sometimes be through the market, and very often through public services. Either way, if it’s done right, it’s investment, not pouring money down the drain. Please don’t reinforce the false paradigm that private expenditure is always wise and good, and public expenditure foolish and spendthrift.
Tony Brauer
Jordans, Buckinghamshire

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